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As filed with the Securities and Exchange Commission on April 14, 2000.
Registration No. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
eRoom System Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Nevada 3610 87-0540713
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
3770 Howard Hughes Parkway, Suite 175, Las Vegas, Nevada 89109, (800) 316-3070
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(Address and telephone number of principal executive offices)
Gregory L. Hrncir, General Counsel and Secretary
3770 Howard Hughes Parkway, Suite 175, Las Vegas, Nevada 89109, (800) 316-3070
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(Name, address and telephone number of agent for service)
Copies to:
Michael J. Bonner Michael D. DiGiovanna
John C. Jeppsen Parker Duryee Rosoff & Haft
Robert C. Kim 529 Fifth Avenue
Kummer Kaempfer Bonner & Renshaw New York, New York 10017
3800 Howard Hughes Parkway, 7th Floor (212) 878-1700
Las Vegas, Nevada 89109
(702) 792-7000
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APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after the
effective date of this Registration Statement.
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If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Class of Securities Proposed Maximum Aggregate
to be Registered Offering Price(1) Amount of Registration Fee
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<S> <C> <C>
Common stock, $0.001 par value $20,700,000 $5,465
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) promulgated under the Securities Act.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act in 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission acting pursuant
to such Section 8(a) may determine.
<PAGE>
SUBJECT TO COMPLETION, DATED __________, 2000
PROSPECTUS
1,800,000 SHARES
[eROOM LOGO]
eROOM SYSTEM TECHNOLOGIES, INC.
COMMON STOCK
This is an initial public offering of the common stock of eRoom System
Technologies, Inc. There is currently no public market for our common stock.
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We have applied for quotation of the common stock on the Nasdaq
SmallCap Market under the symbol "ERMS."
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<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Initial public offering price.......................................... $ $
Underwriting discounts and commissions............................ $ $
Proceeds to eRoom, before expenses..................................... $ $
</TABLE>
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eRoom has granted the underwriters an option for a period of 30 days to
purchase up to 270,000 additional shares of common stock.
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INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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DONALD & CO. SECURITIES INC. MONNESS, CRESPI, HARDT & CO., INC.
______________, 2000
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<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND OUR FINANCIAL STATEMENTS
BEFORE MAKING AN INVESTMENT DECISION.
OUR BUSINESS
eRoom has developed and introduced to the lodging industry what we
believe is the only intelligent, in-room computer platform and communications
network, or the eRoom System. The eRoom System supports our fully-automated and
interactive refreshment centers, or Refreshment Centers, and electronic room
safes, or RoomSafes, along with other proposed applications. These other
applications include, or will include, in-room management capabilities,
information management services, direct credit card billing and network access
solutions.
Our interactive Refreshment Centers provide hotel guests with a
selection of up to 33 different beverages and snacks and offer the lodging
industry an opportunity to capture additional in-room revenues and reduce
operating costs. Our RoomSafes have sufficient storage space for large items
such as laptop computers, video cameras and briefcases and generate additional
revenue. Our products interface with the hotel's property management system
through our eRoom System communications network. The hotel's property management
system posts usage of our products directly to the hotel guest's room account.
The solutions offered by our eRoom System and related products have
allowed us to establish relationships with several premier hotel chains. We have
installed more than 10,000 Refreshment Centers and 2,500 RoomSafes in over
10,000 hotel rooms, including many of Marriott International's flagship
properties. We have an exclusive contract with the purchasing subsidiary of
Promus Hotel Corporation (operator of Doubletree Hotels, Embassy Suites and
Hampton Inn), which was recently acquired by Hilton Hotels Corporation. We are
negotiating with Bass Hotels (operator of Holiday Inn, Crowne Plaza and the
Hotel Inter-Continental) and Carlson Hospitality Worldwide (operator of Radisson
Hotels Worldwide, Regent International Hotels and Country Inns and Suites) for
exclusive or preferred vendor status. We have also installed our products in
Hilton, Best Western, Ramada and other established hotel chains.
We believe that our hotel relationships provide us with the opportunity
to install our eRoom System and related products worldwide. The worldwide
marketplace consists of approximately 11.7 million hotel rooms, of which
approximately 3.5 million are in the United States and 4.7 million are in
Europe, the largest international hotel market. We intend to implement a
comprehensive domestic and international marketing plan to increase our market
share. In addition, we intend to increase our domestic market penetration by
targeting mid-scale properties in addition to the luxury-class market we
currently serve.
The focus of our business model is a revenue sharing program that
allows us to partner with our customers with respect to our products.
Historically, we have experienced resistance from some hotels to purchase our
products because of the initial capital expenditure required. Through our
revenue sharing program, we install our products at little or no upfront cost to
our customers and share in the recurring revenues generated from sales of goods
and services related to our products.
One of the byproducts of our technology is the information we have
collected since our first product installation. To date, we have collected over
eleven million room-nights of data. Through our eRoom System, we are able to
collect information regarding the usage of our products on a real-time basis. We
use this information to help our customers increase their operating
efficiencies. We also intend to market this information to suppliers of goods
sold in our Refreshment Centers and to other users desiring information on the
buying patterns of hotel guests for goods and services.
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We are developing additional value-added products and services to be
delivered to our customers using the platform of our eRoom System. These
additional products and services include:
- A high-speed wired and wireless communications network for
Internet or intranet access;
- Credit card/smart card capabilities for direct billing,
point-of-sale and automated-teller type functions;
- An in-room energy management system that will control room
heating, air conditioning, lighting, television and other
facilities when a guest is not in the hotel room; and
- Remote engineering and maintenance services, creating a
management tool and communications link between each hotel
room and the engineering and housekeeping departments.
We believe that our eRoom System and developing technologies will
provide a foundation for expansion into the healthcare and time-share
industries. We will be able to provide healthcare facilities with a
comprehensive room information and management system that will allow these
facilities to provide patients with a wide array of in-room amenities not
available to them in the past. These amenities include Refreshment Centers,
RoomSafes, direct dial long distance, on-demand movies, Internet access and
other products and services commonly found in a hotel room. Similar
opportunities exist in the time-share industry because many time-share
facilities do not have a front desk or a property management system to bill
for in-room services. By offering a direct credit card billing system, a
healthcare or time-share facility can offer similar services available in
hotels. We also are currently exploring the design and engineering parameters
necessary to offer our products and services to the cruise line industry.
RECENT DEVELOPMENTS
On March 29, 2000, our stockholders approved a reverse split of our
common stock, including all common stock underlying our outstanding options
and warrants, at a rate of three shares for each four shares outstanding, or
the 2000 Reverse Stock Split. The 2000 Reverse Stock Split did not affect our
Series A, Series B and Series C convertible preferred stock, and has been
retroactively reflected in this prospectus.
Also, on March 29, 2000, with the approval of our stockholders, we
changed our name to eRoom System Technologies, Inc. At the same time, we
increased our authorized capital to 50,000,000 shares of common stock, 5,000,000
shares of previously authorized classes of preferred stock, and 5,000,000 shares
of undesignated preferred stock.
On April 12, 2000, we closed our private placement of units, each
unit consisting of 7% Series C convertible preferred stock, a convertible
subordinated promissory note and warrants to purchase common stock. We
received $950,000 in gross proceeds from this private placement.
On April 13, 2000, we issued a subordinated promissory note in the
original principal amount of $1,500,000, bearing interest at the rate of nine
percent per annum. We issued 200,000 shares of our common stock in conjunction
with the loan, or the Bridge Loan.
OUR OFFICES
We maintain offices at 3770 Howard Hughes Parkway, Suite 175, Las
Vegas, Nevada 89109 and 390 North 3050 East, St. George, Utah 84790. Our
telephone number is (800) 316-3070.
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<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by eRoom: 1,800,000 shares
Common stock to be outstanding after the offering: 6,203,172 shares
Use of proceeds: To fund general corporate purposes, including capital
expenditures, working capital and short-term funding
for production and installation of Refreshment Centers
and RoomSafes, to repay certain outstanding
indebtedness and related accrued interest, to pay cash
dividends on our Series A and Series C convertible
preferred stock, and to conduct research and
development and enhance our information management
services.
Proposed Nasdaq SmallCap Market symbol: "ERMS"
</TABLE>
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The number of shares of common stock to be outstanding after the
offering is based on the number of shares outstanding as of April 13, 2000
and does not include 2,502,815 shares of common stock issuable upon exercise
of outstanding stock options and warrants as of April 13, 2000, with a
weighted average exercise price of $5.79 per share. Please see
"Capitalization" for a more complete description regarding our outstanding
common stock, preferred stock, options and warrants.
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Unless otherwise noted, all information contained in this prospectus
assumes that:
- all outstanding convertible preferred stock will be converted
into 2,085,925 shares of common stock upon the closing of this
offering, including 143,940 shares of common stock to be
issued upon the conversion of Series C convertible preferred
stock;
- 200,000 shares of common stock were issued under the Bridge
Loan;
- the underwriters will not exercise their option to purchase
additional shares of common stock to cover over-allotments, if
any; and
- the public offering price will be $9.00 per share.
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<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables summarize the financial information for our
business. The summary financial information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and related notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................. $356 $710 $4,666 $1,011 $592
Cost of revenue..................... 301 804 3,339 793 362
Gross margin (deficit).............. 55 (94) 1,327 218 230
Income (loss) from operations....... (805) (1,804) (219) (6,983) 1,473
Net income (loss)................... (877) (2,219) (1,000) (9,000) 335
Dividends related to convertible
preferred stock................... - - - (19) (607)
Net loss attributable to common
stockholders...................... (877) (2,219) (1,000) (9,018) (273)
Basic and diluted net loss per common
share (1)......................... (1.56) (2.61) (0.76) (2.98) (0.09)
Basic and diluted weighted average
common shares outstanding (1)..... 560 850 1,314 3,029 3,221
Basic and diluted supplemental pro
forma net loss per common share
(1)............................... (1.07)
Basic and diluted supplemental pro
forma weighted average common shares
outstanding (1)................... 5,163
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
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PRO FORMA
ACTUAL PRO FORMA (2) AS ADJUSTED (3)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................................................... $113 $113 $15,375
Working capital (deficit)................................ (2,599) (2,599) 12,662
Total assets............................................. 4,365 4,365 19,662
Long-term liabilities.................................... 867 867 1,098
Total stockholders' equity (deficit)..................... (24) (24) 15,041
</TABLE>
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(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share
data.
(2) The pro forma amounts reflect the conversion of our outstanding Series A
and Series B convertible preferred stock into our common stock which will
occur upon the closing of this offering.
(3) Pro forma as adjusted amounts reflect the pro forma adjustments at note (2)
above, as well as the sale of 1,800,000 shares of common stock in this
offering at an assumed initial public offering price of $9.00 per share,
after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us, the conversion of our
outstanding Series C convertible preferred stock into 143,940 shares of
common stock, which will occur at the closing of this offering, the
issuance of 200,000 shares of common stock in connection with the Bridge
Loan, the cancellation of 140,625 shares of common stock upon the
cancellation of a note receivable from a stockholder, and the issuance of
9,356 and 31,225 shares of common stock for interest and Series B
convertible preferred dividends, respectively.
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<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY
CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES, BEFORE YOU
PURCHASE ANY SHARES OF OUR COMMON STOCK. THE FOLLOWING RISKS, IF THEY OCCUR,
COULD MATERIALLY HARM OUR BUSINESS, FINANCIAL CONDITION OR FUTURE RESULTS OF
OPERATIONS. IF THAT OCCURS, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE,
AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT. IN ADDITION, THE FOLLOWING
RISKS ARE NOT THE ONLY RISKS WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT
PRESENTLY KNOWN TO US, OR THAT WE CONSIDER IMMATERIAL OR THAT ARE SIMILAR TO
THOSE FACED BY OTHER COMPANIES IN ONE OR MORE OF THE SAME LINES OF BUSINESS, MAY
ALSO IMPAIR OUR BUSINESS OPERATIONS.
RISKS RELATED TO eROOM
WE HAVE A HISTORY OF OPERATING LOSSES AND ANTICIPATE CONTINUED
OPERATING LOSSES, AND WE MAY BE UNABLE TO ACHIEVE PROFITABILITY
We have a history of operating losses. For the years ended December
31, 1998 and 1999, we have incurred net losses applicable to common
stockholders of $9,018,188 and $272,743, respectively, and our operations
have used $2,931,871 and $2,753,939 of cash, respectively. As of December
31, 1999, we had an accumulated deficit of $14,531,491 and a working capital
deficit of $2,598,726. Given our historical losses, accumulated deficit and
negative operating cash flows, our ability to continue as a going concern is
entirely dependent upon receiving significant funding from this offering. Our
future profitability, if any, will be driven by numerous factors, including:
- timing and amount of funds required for, or generated by,
operations;
- our ability to obtain further short-term and long-term
financing;
- success and duration of our expansion program, both
domestically and internationally; and
- unanticipated opportunities or difficulties.
If our revenues decline or grow at a slower rate than we anticipate, or
if our spending levels exceed our expectations or cannot be adjusted to reflect
slower revenue growth, our business would be severely harmed. We cannot assure
you that revenues will grow in the future or that we will generate sufficient
revenues for profitability, or that profitability, if achieved, can be sustained
on an ongoing basis.
DUE TO THE CAPITAL INTENSIVE NATURE OF OUR BUSINESS, WE REQUIRE
LONG-TERM FINANCING IN ADDITION TO THE PROCEEDS FROM THIS OFFERING IN ORDER TO
FUND OUR OPERATIONS
The emphasis of our business model on a revenue sharing program
significantly increases our need for long-term financing in addition to the
proceeds from this offering because we offer our products at little or no
upfront cost to our customers. In order to address our long-term capital needs,
we have entered into an exclusive post-installation financing arrangement with
an equipment financier. Under the financing arrangement, our equipment financier
will finance up to 150% of our costs for the Refreshment Centers and RoomSafes
upon the completion of a 90-day seasoning period after installation and the
satisfaction of certain pre-funding requirements. If our equipment financier
were to delay or refuse to provide our required financing, we cannot assure you
that other long-term financing will be available in sufficient amounts or on
terms acceptable to us, or at all. If our equipment financier delays or refuses
to provide our required financing or we are unable to obtain other long-term
financing, our business, results of operations and financial condition will be
adversely affected.
WE HAVE RECENTLY SHIFTED THE FOCUS OF OUR BUSINESS MODEL FROM
TRADITIONAL SALES TO AN UNPROVEN REVENUE SHARING PROGRAM
We have traditionally relied upon the sale of our products. Recently,
we shifted the focus of our business model from product sales to our revenue
sharing program. Our business model is new and our ability to generate
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<PAGE>
revenues or profits is unproven. Under our revenue sharing program, we offer
our products at little or no upfront cost to our customers and share the
revenue generated by our products over a seven-year period. We cannot assure
you that our portion of the revenues generated will be sufficient to cover
the costs to produce, install, maintain and finance our products. Our success
under our revenue sharing program is also dependent upon the hotel's
compliance with certain covenants regarding the placement of our Refreshment
Centers, the location in the hotel of competing vending machines that sell
goods similar to those in our Refreshment Centers, and the price of goods
sold through the vending machines.
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO EXPAND OUR CUSTOMER BASE FOR
OUR CURRENT PRODUCTS AND TO DEVELOP AND MARKET NEW PRODUCTS AND SERVICES
We have traditionally focused our marketing efforts on the lodging
industry, and our success is dependent on our ability to expand our customer
base in that industry. Our success is also dependent on our ability to expand
into new markets, including the healthcare, time-share and cruise line
industries. Our growth strategy also includes expanding our product offerings
to include services we have not provided in the past. Our ability to enter
into new markets and to provide these new services will require significant
additional research and development, marketing and formation of strategic
relationships. We cannot assure you that any of these efforts will be
successful.
THE FAILURE OF OUR CUSTOMERS TO MEET OUR EQUIPMENT FINANCIER'S FUNDING
REQUIREMENTS WOULD PLACE US IN A PRECARIOUS FINANCIAL CONDITION
Prior to receiving funding under our long-term financing arrangement,
participating hotels will need to satisfy certain pre-funding requirements
during a 90-day seasoning period after installation. The majority of these
pre-funding requirements are outside our control. The failure of participating
hotels to meet these pre-funding requirements would likely result in the
equipment financier either delaying or refusing the financing for the respective
Refreshment Centers and RoomSafes. If the equipment financier does not fund such
installations, we may be required to find other long-term financing sources for
the costs of our products. Our inability to find alternative sources of
financing will prevent us from installing additional products under our revenue
sharing program and will negatively affect our business, financial condition and
operating results.
THE INTEREST RATE FOR OUR LONG-TERM FINANCING WILL RESULT IN A HIGHER
INTEREST RATE THAN WE MAY HAVE BEEN ABLE TO NEGOTIATE IF WE WERE STRONGER
FINANCIALLY
The financing arrangement we negotiated with the equipment financier
will result in an interest rate higher than the interest rate we may have
been able to negotiate if we were stronger financially. Due to the exclusive
nature of this financing arrangement, our ability to obtain financing for
revenue sharing agreements at more advantageous interest rates during the
seven-year term of the financing arrangement will be contractually restricted.
THE FAILURE TO ESTABLISH A TURN-KEY MANUFACTURING SOURCE TO MEET OUR
PROJECTED DEMAND WOULD RESULT IN THE REDUCTION OF CASH FLOW AND OUR INABILITY
TO SUPPORT OUR REVENUE SHARING PROGRAM
Our Refreshment Centers require a certain amount of assembly of
different components at our St. George, Utah facility. Since our existing
facility is not sufficient to meet our projected growth, we will either have to
establish a turn-key manufacturing source, expand our assembly facility or hold
orders for our products unfulfilled. We presently intend to establish one or
more turn-key manufacturing sources to meet our projected demand. If our
installations increase significantly, our ability to establish a sufficient
turn-key manufacturing source is critical to our future success.
IF OUR EXISTING INFRASTRUCTURE IS NOT SUFFICIENT TO MANAGE GROWTH, OUR
BUSINESS AND FINANCIAL CONDITION COULD BE HARMED
We intend to expand our customer base for our current products and to
develop and market new products and services. If we are successful, our business
will require the implementation of expanded operational and
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<PAGE>
financial systems, procedures and controls, billing functions, the training
of a larger employee base, and increased coordination among our software,
hardware, accounting, finance, marketing, sales and field service staffs. Our
assembly and service and installation departments are presently insufficient
to assemble, install, manage and service our projected growth. If we are
unable to manage our growth effectively or if we experience disruptions
during our expansion, our business, results of operations and financial
condition will be adversely affected.
WE FACE INTENSE COMPETITION FROM COMPANIES THAT HAVE SUBSTANTIALLY
GREATER CAPITAL, RESEARCH AND DEVELOPMENT, MANUFACTURING AND MARKETING RESOURCES
THAN WE HAVE
The market for in-room amenities in the lodging industry is
competitive, and we expect competition to intensify in the future. Our
competitors vary in size and in the scope and breadth of the products and
services they offer. Most of our current and potential competitors have longer
operating histories, larger customer bases, greater brand recognition, and
substantially greater capital, research and development, manufacturing,
marketing, service, support, technical and other resources than we do. As a
result, our competitors may be able to devote greater resources to marketing
campaigns, adopt more aggressive pricing policies or devote substantially more
resources to customer and business development than we can. We also anticipate
facing additional competition from new entrants into the room management and
related aspects of our business. This increased competition may result in
reduced operating margins and loss of market share. In addition, we may from
time to time make pricing, service or marketing decisions or acquisitions as a
strategic response to changes in the competitive environment. Our response to
these competitive conditions could reduce our profits and harm our financial
condition and results of operation.
AS WE EXPAND OUR BUSINESS TO INCLUDE OTHER MARKETS, PRODUCTS AND
SERVICES, WE WILL BE FACED WITH CHALLENGES THAT WE HAVE NEVER FACED BEFORE AND
COMPETITION FROM A POTENTIALLY WIDE VARIETY OF COMPANIES
We plan to offer our current products and services to customers outside
the lodging market and to offer new products and services such as in-room energy
management, coordination of housekeeping and engineering activities, Internet
access, videoconferencing and other communications. In doing this, we will be
entering into markets and businesses in which we have little or no experience.
As a result, we will be confronted with challenges and competition that we have
never faced before. We cannot assure you that we will be successful in expanding
our products and services or that we will be able to meet the new challenges and
competitors associated with the expansion of our products and services.
WE ARE LIKELY TO EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY
REVENUES AND OPERATING RESULTS WHICH MAY MAKE THE PRICE OF OUR COMMON STOCK
DIFFICULT TO PREDICT
Our quarterly operating results have varied in the past, and we expect
that our revenues and operating results will continue to fluctuate significantly
from quarter to quarter due to a variety of factors, many of which are outside
of our control. Our revenues for the first, second, third and fourth quarters of
1998 and 1999 were 25.3%, 2.5%, 2.7%, 69.5% and 19.3%, 27.6%, 27.6% and 25.7%,
respectively, of our total revenues for the years then ended. Some important
factors affecting our quarterly revenues and operating results, in order of
their relative magnitude, are:
- changes in the percentage of our products sold versus products
placed pursuant to our revenue sharing program;
- changes in our operating expenses as we expand operations;
- timing and execution of major customer orders;
- pricing changes by our competitors in the industry; and
- changes in economic conditions, such as a recession.
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<PAGE>
IF WE ARE UNABLE TO PROTECT OUR CURRENT INTELLECTUAL PROPERTY AND TO
OBTAIN ADDITIONAL INTELLECTUAL PROPERTY RIGHTS, OUR COMPETITIVE POSITION COULD
BE HARMED
We believe our intellectual property is important to our competitive
position and is a significant aspect of the products we provide. If we are
unable to protect our intellectual property against unauthorized use by others,
our competitive position could be harmed. We generally enter into
confidentiality or non-compete agreements with most of our employees and
consultants, and control access to and distribution of our documentation and
other proprietary intellectual property. Despite these precautions, we cannot
assure you that these strategies will be adequate to prevent misappropriation of
our proprietary intellectual property.
Even if we are successful in protecting our proprietary intellectual
property, we also face the following risks:
- non-recognition of our intellectual property rights, including
in jurisdictions outside of the United States;
- development of similar technologies by competitors; and
- infringement claims, even if not meritorious, against us.
We could be required to expend significant amounts to defend our proprietary
rights in our intellectual property. In addition to our existing patents, we
have recently submitted a patent application relating to our Refreshment
Centers. If we are unable to obtain all of the patents we have made applications
for, we may not be able to protect our proprietary information and products
underlying such applications.
OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE
ADVERSELY AFFECTED IF WE ARE UNABLE TO RECRUIT AND RETAIN EMPLOYEES WITH THE
APPROPRIATE MANAGEMENT AND TECHNICAL SKILLS
We are highly dependent on the services of Steven L. Sunyich, our
President, Chief Executive Officer and Chairman of the Board, as well as Derek
K. Ellis, our Chief Financial Officer, and certain other officers and key
employees of eRoom. The loss of services of Messrs. Sunyich, Ellis or other
officers and key employees could have a material adverse effect on our business,
financial condition or results of operations. Our future success depends on our
ability to recruit and retain employees with the appropriate management and
technical skills. We intend to purchase a $2,000,000 key man insurance policy
with respect to Mr. Sunyich.
OUR BUSINESS IS DEPENDENT UPON OUR ABILITY TO MAINTAIN OUR CURRENT
RELATIONSHIPS WITH CERTAIN HOTEL CHAINS, TO ENTER INTO DEFINITIVE AGREEMENTS
WITH OTHER HOTEL CHAINS AND TO ENTER INTO AGREEMENTS WITH THE FRANCHISEES OF
THESE HOTEL CHAINS
We are the exclusive or preferred vendor of interactive computerized
Refreshment Centers for certain premier hotel chains. We are currently
pursuing similar arrangements with other hotel chains as a part of our growth
strategy. These arrangements may not generate any sales or placements of our
products. Even if we are, or become, the exclusive or preferred vendor of
Refreshment Centers to hotel chains, we must also enter into definitive
agreements with the respective franchisees of these hotel chains for the sale
or placement of our products. The failure to maintain our current
relationships with hotel chains, secure additional relationships and enter
into definitive agreements with franchisees of these hotel chains would have
a material adverse effect on our future financial condition and operating
results.
OUR ABILITY TO SUCCESSFULLY MARKET INTERNATIONALLY IS SUBJECT TO OUR
INEXPERIENCE AND OUR ABILITY TO COMPLY WITH FOREIGN LAWS AND REGULATIONS
Part of our growth strategy is to expand into the international
lodging market. As the international market represents only a small portion
of our current business, we will have to allocate significant resources in
order to promote our products internationally. Revenues from our current
operations, let alone revenues from our proposed international operations,
may not offset the expense of establishing and maintaining
-9-
<PAGE>
these international operations. We may not have sufficiently experienced
sales personnel to effectively market and sell our products in international
markets. We may be required to enter into distributorship or other similar
agreements for particular geographic areas. If so, we cannot assure you that
we will be successful in soliciting the best distributors, or that if
distributors are selected, that the additional costs of such distributors
will not erode our ability to achieve profitable sales or revenue sharing
arrangements for the placement of our products. Some additional factors that
may impact our ability to initiate and maintain successful operations in
foreign markets include, among others, compliance with foreign laws and
regulations, fluctuations in foreign currency, general political and economic
trends, and language and cultural differences.
WE MAY BE SUBJECT TO PENALTIES AND BACK TAXES IN CERTAIN STATES WHERE
WE FAILED TO QUALIFY TO DO BUSINESS AS A FOREIGN CORPORATION
We have not been qualified to do business as a foreign corporation in
certain states where we conduct business. We are in the process of making the
necessary applications to qualify to do business in those states, and may be
subject to penalties and back taxes. We do not believe that any penalties and
taxes imposed will be material.
RISKS RELATED TO OUR INDUSTRY
OUR SUCCESS DEPENDS ON OUR ABILITY TO KEEP UP WITH TECHNOLOGICAL AND
OTHER CHANGES IN OUR INDUSTRY
Our future success will depend on our ability to continue to develop
and introduce new products or new features to our existing products that will
provide us with an advantage over our competitors. Our competitors could
modify their products to become fully-automated and interactive. Any failure
by us to anticipate or respond adequately to changes in our industry, or any
significant delays in our development and placement of our products and
services, could make our products and services unmarketable or obsolete. In
particular, we believe that our future success will depend, in part, upon the
successful development and installation of updated eRoom System software and
the enhancement of our communications network to supply additional products
and services.
OUR REVENUES COULD BE HARMED IF THERE IS A DOWNTURN IN THE LODGING
INDUSTRY OR THE ECONOMY IN GENERAL
Historically, we have received substantially all of our revenues from
the sale or placement under a revenue sharing program of our products in hotels
in the lodging industry, and we expect that these revenues will account for a
substantial majority of our revenues for the foreseeable future. Our dependence
on the lodging industry, including their guests, makes us vulnerable to
downturns in the lodging industry. Such a downturn could result in some hotels
delaying or declining to purchase or place our products or failing to renew our
maintenance agreements, or it could result in fewer purchases by hotel guests of
goods and services from our products installed in hotels.
The lodging industry is cyclical in nature and is sensitive to the
general economic environment. A downturn in the general economic environment
could adversely affect hotel occupancy rates, average daily room rates and
revenue per available room. Time spent by individuals on travel and leisure is
typically discretionary for consumers and may be particularly affected by
adverse trends in the general economy. The success of our operations depends, in
part, upon discretionary consumer spending and economic conditions affecting
disposable consumer income such as employment, wages and salaries, business
conditions, interest rates, availability of credit and taxation. Any significant
deterioration in general economic conditions that adversely affects these
factors could also have a material adverse effect on our business.
THE HEIGHTENED REGULATORY ENVIRONMENT OF SOME OF OUR POTENTIAL
CUSTOMERS MAY HAVE AN ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND
REVENUES
We are subject to laws and regulations applicable to businesses
generally, as well as to laws and regulations directly applicable to the lodging
industry. Certain of our existing and potential customers are subject to
additional laws or regulations, such as laws and regulations related to liquor
and gaming. Due to the licensing requirements relating to the sale of alcohol,
the inability of our customers to obtain or maintain their liquor licenses will
result in the loss of revenues for our customers. In turn, our operating
results, especially those from our revenue sharing
-10-
<PAGE>
program, will be adversely affected. Due to the heightened hotel-casino
regulatory environment, and our intent to market to these properties, our
operations may be subject to review by a hotel-casino's compliance committee
to verify that its involvement with us would not jeopardize its gaming
license. If our history or operations present problems for regulated
customers or potential customers, such as hotel-casinos, we would either have
to expend resources to address or eliminate the concerns or forego the
business. Under either scenario, our business operations, financial condition
or revenues may be negatively impacted.
RISKS RELATED TO THIS OFFERING
BECAUSE THERE IS NO PRIOR MARKET FOR OUR COMMON STOCK, THE PRICE OF OUR
COMMON STOCK MAY BE HIGHLY VOLATILE, WHICH MAY LEAD TO LOSSES BY INVESTORS AND
SECURITIES LITIGATION
The initial public offering price was determined through negotiations
between the underwriters and us and may not be representative of the price that
will prevail in the open market. Since there has not been a public market for
our common stock prior to this offering, the price of our common stock may be
highly volatile as a result of its response to certain factors. Some of these
factors include actual or anticipated fluctuations in our annual and quarterly
operating results, our ability to execute our business plan and meet our
projected growth, additions or departures of key personnel, changes in financial
estimates by securities analysts, and general economic, industry and market
conditions.
DUE TO OUR HISTORY OF OPERATING LOSSES AND THE UNPREDICTABILITY OF OUR
STOCK PRICE ON THE OPEN MARKET, WE MAY NOT BE ABLE TO MAINTAIN THE LISTING OF
OUR COMMON STOCK ON THE NASDAQ SMALLCAP MARKET
We intend to make an application for listing of our common stock on the
Nasdaq SmallCap Market. Assuming that we are listed initially, we must meet
certain minimum criteria for continued listing in order to maintain the listing
of our common stock on the Nasdaq SmallCap Market. As we have a history of
operating losses and as there has not been a public market for our common stock,
we may not be able to meet the requirements for continued listing on the Nasdaq
SmallCap Market. In the event that our common stock no longer meets the listing
requirements of the Nasdaq SmallCap Market, our common stock will most likely be
traded on the OTC Bulletin Board or the National Quotation Bureau Pink Sheets.
If our common stock is no longer traded on the Nasdaq SmallCap Market, the
visibility of our common stock to the market will most likely be reduced.
OUR EXECUTIVE OFFICERS AND MEMBERS OF OUR BOARD OF DIRECTORS (INCLUDING
DIRECTOR DESIGNEES) WILL EXERCISE SIGNIFICANT CONTROL OVER EROOM AND COULD LIMIT
THE ABILITY OF OUR OTHER STOCKHOLDERS TO INFLUENCE THE OUTCOME OF DIRECTOR
ELECTIONS AND OTHER TRANSACTIONS SUBMITTED TO A VOTE OF STOCKHOLDERS
Immediately following this offering, our executive officers and
members of our Board of Directors (including director designees) will own
approximately 27.1% of the outstanding shares of our common stock (23.2% if
the underwriters' over-allotment option is exercised in full). These
stockholders will have the power to influence all matters requiring approval
by our stockholders, including the election of directors and approval of
mergers and other significant corporate transactions. This concentration of
ownership may also have the effect of delaying or preventing a change in
control of eRoom.
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE FOR SALE IN THE
NEAR FUTURE MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
Sales of a substantial number of shares of common stock in the
public market following this offering could cause the market price for our
common stock to decline. Upon completion of this offering, and based upon
certain assumptions set forth herein, there will be 6,203,172 outstanding
shares of common stock, of which 1,800,000 shares will be sold in this
offering plus shares issued upon exercise of the underwriter's over-allotment
option, if any. All of the shares sold in this offering will be immediately
available for resale. In light of existing lock-up arrangements, 2,651,973
shares will be available for sale 90 days after the date of this prospectus
subject to restrictions set forth in Rule 144 under the Securities Act of
1933, or the Securities Act.
-11-
<PAGE>
WE HAVE BROAD DISCRETION IN HOW WE USE THE PROCEEDS OF THIS OFFERING
AND WE MAY NOT USE THE PROCEEDS EFFECTIVELY OR IN A MANNER WITH WHICH YOU AGREE
As of the date of this prospectus, we intend to use a majority of the
proceeds from this offering to fund general corporate purposes, including
capital expenditures, working capital and short-term funding for production and
installation of Refreshment Centers and RoomSafes, to repay certain outstanding
indebtedness and related accrued interest, to pay cash dividends on our Series A
and Series C convertible preferred stock, and to conduct research and
development and enhance our information management services. Because of the
number and variability of factors that determine our use of the net proceeds
from this offering, if for some reason we do not use the proceeds in the manner
described above, we cannot assure you that you will agree with our use of the
proceeds. Pending their use, we intend to invest the net proceeds of this
offering in short-term, investment-grade, interest-bearing investments or
accounts.
INVESTORS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION AND DISPARITY IN STOCK PURCHASE PRICE
The initial public offering price is expected to be substantially
higher than the pro forma net tangible book value per share of the
outstanding common stock immediately after this offering. Accordingly,
purchasers of common stock in this offering will experience immediate and
substantial dilution of approximately $6.63 in net tangible book value per
share, or approximately 74% of the assumed offering price of $9.00 per share.
In contrast, stockholders as of December 31, 1999 paid an average price of
$3.28 per share. Investors will incur additional dilution upon the exercise
of outstanding stock options and warrants.
PROVISIONS OF OUR ARTICLES OF INCORPORATION, BYLAWS AND NEVADA LAW
COULD DETER POTENTIAL ACQUISITION BIDS THAT A STOCKHOLDER MAY BELIEVE ARE
DESIRABLE, AND THE MARKET PRICE OF OUR COMMON STOCK MAY BE LOWER AS A RESULT
Our articles of incorporation and bylaws contain provisions that could
delay or prevent a change in control. These provisions include the ability of
our Board of Directors, or our Board, to issue undesignated preferred stock
without stockholder approval, commonly referred to as "blank check" preferred
stock, with rights senior to those of common stock, the limitation on the
persons who can call special meetings of stockholders, and the establishment of
advance notice requirements for matters to be presented to stockholder meetings.
These provisions could limit the price that investors might be willing to pay in
the future for shares of our common stock.
In addition, certain provisions of Nevada law make it more difficult
for a third party to acquire us. Some of these provisions include the
establishment of a supermajority stockholder voting requirement to approve an
acquisition by a third party of a controlling interest and the imposition of
time restrictions and additional approvals for an acquisition of us by an
interested stockholder. These provisions could also limit the price that
investors might be willing to pay in the future for shares of our common stock.
SINCE WE PLAN TO RETAIN FUTURE EARNINGS, IF ANY, TO FINANCE THE
EXPANSION OF OUR OPERATIONS, WE DO NOT EXPECT TO PAY ANY CASH DIVIDENDS ON OUR
COMMON STOCK
We have never declared or paid any cash dividends on our common stock.
In addition, we presently intend to retain future earnings, if any, to finance
the expansion of our business and do not expect to pay any cash dividends in the
foreseeable future, excluding dividends on our Series A and Series C convertible
preferred stock. Investors should not purchase our common stock with the
expectation of receiving cash dividends.
-12-
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Some of the information in this prospectus contains forward-looking
statements within the meaning of the federal securities laws. These statements
include, among others, the following:
- the use of proceeds of this offering;
- those pertaining to the implementation of our operating and
growth strategy; and
- our projected capital expenditures.
These statements may be found under "Prospectus Summary," "Risk
Factors," "Dividend Policy," "Capitalization," "Dilution," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." Forward-looking statements typically are identified by use of
terms such as "may," "will," "would," "expect," "anticipate," "estimate" and
similar words, although some forward-looking statements are expressed
differently. You should be aware that our actual results could differ
materially from those contained in forward-looking statements due to a number
of factors, including:
- our ability to achieve corporate contracts with large hotel
chains and definitive agreements with franchisees;
- our successful management of new product development;
- our ability to outsource the manufacture and assembly of our
products effectively;
- our ability to finance our products effectively and
profitably;
- our ability to maintain and expand our revenue sharing
program;
- our ability to compete effectively in the lodging industry;
- our ability to successfully diversify into the international,
healthcare, cruise ship and time-share markets;
- our ability to manage expansion effectively; and
- general economic and business conditions in our markets and
industry.
You should also consider carefully the statements under "Risk Factors"
and other sections of this prospectus, which address additional factors that
could cause our actual results to differ from those set forth in the
forward-looking statements.
-13-
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of common
stock we are offering will be approximately $14.0 million (approximately $16.2
million if the underwriters' over-allotment option is exercised in full). "Net
proceeds" are what we expect to receive after paying the underwriting discount
and other expenses of this offering. For the purpose of estimating net proceeds,
we are assuming that the public offering price will be $9.00 per share.
We intend to use the net proceeds from the sale of the shares for the
following purposes and in the following amounts:
<TABLE>
<CAPTION>
PROPOSED USE AMOUNT
------------ -----------
<S> <C>
General corporate purposes, including capital expenditures,
working capital and short-term funding for production and
installation of Refreshment Centers and RoomSafes......... $7,945,000
Repayment of outstanding indebtedness and related accrued
interest and payment of cash dividends on our Series A
and Series C convertible preferred stock.................. 5,235,000
Research and development and enhancement of information
management services....................................... 800,000
-----------
TOTAL $13,980,000
===========
</TABLE>
The proceeds allocated to working capital will be applied, in part, to
fund advertising and promotion, and our expansion into the healthcare,
time-share and cruise ship industries and into the international markets. In
addition, although we have no current intentions to make strategic acquisitions,
we may use a portion of the proceeds for such purposes should the event arise.
The foregoing represents our present intentions for the use of the
proceeds of this offering based on our currently contemplated operations,
business plan and the prevailing economic and industry conditions. Changes in
the use of proceeds of this offering may be made in response to, among other
things, changes in our financial condition, business plans or growth strategy
and changes in general industry conditions.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
Although the terms of our outstanding shares of Series A convertible preferred
stock, Series B convertible preferred stock and Series C convertible preferred
stock provide for annual cumulative dividends of 8%, 6% and 7%, respectively,
our Board has not declared cash dividends on any class of preferred stock.
Although no cash dividends have been paid to date to holders of Series
A convertible preferred stock, we have accrued dividends of $198,542 as of March
31, 2000. We intend to pay such dividends from the proceeds of this offering. As
for our Series B convertible preferred stock, we have issued 66,792 shares of
common stock in the form of dividends to holders of Series B convertible
preferred stock as of March 31, 2000. In addition, we intend to pay all accrued
dividends to holders of Series C convertible preferred stock from the net
proceeds of this offering.
Our Board presently, and for the foreseeable future, intends to retain
all of our earnings, if any, for the development of our business. The
declaration and payment of cash dividends in the future will be at the
discretion of our Board and will depend upon a number of factors, including,
among others, our future earnings, operations, funding requirements,
restrictions under our credit facility, our general financial condition and any
other factors that our Board considers important.
-14-
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of our
outstanding shares of Series A and Series B convertible
preferred stock into 1,941,985 shares of our common stock;
and
- on a pro forma as adjusted basis to reflect:
- the conversion of our outstanding shares of Series A,
Series B and Series C convertible preferred stock
into 2,085,925 shares of our common stock;
- the immediate amortization of our $156,386 preferred
stock discount, the immediate amortization of our
$52,129 debt discount and the issuance of 47,500
warrants valued at $165,349 related to the Series C
convertible preferred stock;
- the issuance of the Bridge Loan, including the
issuance of 200,000 shares of common stock, of which
$1,051,402 was allocated to debt and $440,374 to
common stock;
- the pro forma adjustment, as well as the issuance of
1,800,000 shares of common stock by us in this
offering at an assumed initial public offering price
of $9.00 per share, after deducting estimated
underwriting discounts and commissions and estimated
offering expenses payable by us; and
- on a pro forma basis equity transactions incurred by
us through April 12, 2000, which includes the
cancellation of 140,625 shares of common stock and a
$656,250 note receivable from a stockholder, $29,939
of interest converted into 9,356 shares of common
stock and $93,676 of accrued dividends on the Series
B convertible preferred stock paid with 31,225
shares of common stock.
<TABLE>
<CAPTION>
As of December 31, 1999
------------------------------------------------------
Pro Forma As
Actual Pro Forma Adjusted
-------------- ---------------- ----------------
<S> <C> <C> <C>
Notes payable and current portion of long-term debt and
capital lease obligations................................. $1,582,519 $1,582,519 $1,583,756
============== =============== ================
Long-term debt and capital lease obligations, net of current
portion................................................... $867,119 $867,119 $1,098,140
-------------- --------------- ----------------
Stockholders' equity (deficit):
Series A convertible preferred stock, $0.001 par
value; 500,000 shares authorized, 360,000 shares
outstanding (actual), none outstanding (pro forma
and pro forma as adjusted)........................... 1,332,953 - -
Series B convertible preferred stock, $0.001 par
value; 2,500,000 shares authorized, 2,081,680
shares outstanding (actual), none outstanding (pro
forma and pro forma as adjusted)..................... 6,171,196 - -
Series C convertible preferred stock, $0.001 par
value; 2,000,000 shares authorized, no shares
outstanding (actual, pro forma and pro forma as
adjusted)............................................ - - -
Undesignated preferred stock, $0.001 par value;
5,000,000 shares authorized; no shares outstanding - - -
(actual, pro forma and pro forma as adjusted)........
Common stock, $0.001 par value; 50,000,000 shares
authorized, 2,217,291 shares outstanding (actual),
4,159,276 (pro forma) and 6,203,172 (pro forma as
adjusted)............................................ 2,217 4,159 6,203
Additional paid-in capital............................... 7,112,734 19,840,595 34,413,962
Warrants and options outstanding......................... 728,538 728,538 893,887
Notes receivable from stockholders....................... (840,000) (840,000) (183,750)
Accumulated deficit...................................... (14,531,491) (19,757,145) (20,089,275)
-------------- ---------------- ----------------
Total stockholders' equity (deficit)................. (23,853) (23,853) 15,041,027
-------------- ---------------- ----------------
Total capitalization.............................. $843,266 $843,266 $16,139,167
============== ================ ================
</TABLE>
-15-
<PAGE>
DILUTION
Our pro forma net tangible book value (deficit) as of December 31, 1999
was approximately $(362,000), or $(0.09) per share of common stock. Pro forma
net tangible book value (deficit) per share is determined by dividing the amount
of our pro forma tangible assets less total liabilities by the pro forma number
of shares of common stock outstanding at that date. Dilution in net tangible
book value per share represents the difference between the amount per share paid
by purchasers of shares of common stock in this offering and the pro forma as
adjusted net tangible book value per share of common stock immediately after the
completion of this offering.
After giving effect to the issuance and sale of the shares of common
stock offered by us at an assumed initial public offering price of $9.00 per
share and after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by us, and the application of the
estimated net proceeds from this offering, our pro forma as adjusted net
tangible book value as of December 31, 1999 would have been approximately
$14,703,000 or $2.37 per share. This represents an immediate increase in pro
forma net tangible book value to our existing stockholders of $2.46 per share
and an immediate dilution to purchasers in this offering of $6.63 per share.
If the initial public offering price is higher or lower, the dilution to
purchasers in this offering will be greater or less, respectively.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................... $9.00
Pro forma net tangible book deficit per share at December 31, 1999...... $(0.09)
Increase in pro forma net tangible book value per share attributable to
this offering........................................................ 2.46
Pro forma as adjusted net tangible book value per share after this --------
offering................................................................ 2.37
--------
Dilution per share to new investors....................................... $6.63
========
</TABLE>
Assuming the exercise in full of the underwriters' over-allotment
option, our pro forma as adjusted net tangible book value at December 31, 1999
would have been approximately $2.61 per share, representing an immediate
increase in pro forma net tangible book value of $2.70 per share to our existing
stockholders and an immediate dilution in pro forma net tangible book value of
$6.39 per share to purchasers in this offering.
The following table summarizes, on a pro forma basis as of December 31,
1999, the differences between the number of shares of common stock purchased
from us, the aggregate effective cash consideration paid to us and the average
price per share paid by existing stockholders and new investors purchasing
shares of common stock in this offering. The calculation below is based on an
assumed initial public offering price of $9.00 per share, before deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------------- -------------------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------------- ---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 4,403,172 71% $14,739,418 48% $3.35
New investors.................... 1,800,000 29% 16,200,000 52% 9.00
---------------- ---------- ---------------- ----------
Total....................... 6,203,172 100% $30,939,418 100%
================ ========== ================ ==========
</TABLE>
This discussion and table assumes no exercise of any stock options and
warrants outstanding as of December 31, 1999, and includes the conversion of
Series A, Series B and Series C convertible stock into common stock. As of
December 31, 1999, there were options and warrants outstanding to purchase a
total of 866,508 shares of common stock with a weighted average exercise price
of $4.39 per share. To the extent that any of these options and warrants are
exercised, there will be further dilution to new investors. Please see
"Capitalization."
-16-
<PAGE>
SELECTED FINANCIAL DATA
This section presents selected historical financial data of eRoom. You
should read carefully the financial statements included in this prospectus,
including the notes to the financial statements. The selected information in
this section is not intended to replace the financial statements. The
information below also should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this prospectus.
We derived the selected consolidated statement of operations data
presented below for each of our 1998 and 1999 fiscal years and the balance sheet
data at December 31, 1998 and 1999 from our audited consolidated financial
statements appearing elsewhere in this prospectus. We derived the selected
consolidated statement of operations data presented below for each of our 1995,
1996 and 1997 fiscal years and the balance sheet data at December 31, 1995, 1996
and 1997 from our audited financial statements not appearing in this
prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product sales..................... $169 $360 $4,431 $917 $144
Revenue sharing arrangements...... 129 269 133 46 265
Maintenance fees.................. 58 81 102 48 183
--------- --------- --------- --------- ---------
Total revenue.................. 356 710 4,666 1,011 592
--------- --------- --------- --------- ---------
Cost of revenue:
Product sales..................... 221 625 3,203 711 118
Revenue sharing arrangements...... 50 110 55 21 166
Maintenance fees.................. 30 69 81 61 78
--------- --------- --------- --------- ---------
Total cost of revenue.......... 301 804 3,339 793 362
--------- --------- --------- --------- ---------
Gross margin (deficit).............. 55 (94) 1,327 218 230
--------- --------- --------- --------- ---------
Operating expenses:
Selling general and administrative
(exclusive of non cash compensation) 771 1,439 1,231 2,058 2,388
Research and development (exclusive
of non cash compensation)........ 89 271 216 285 271
Non cash compensation expense
(income)......................... - - 99 4,858 (3,902)
--------- --------- --------- --------- ---------
Total operating expenses....... 860 1,710 1,546 7,201 (1,243)
--------- --------- --------- --------- ---------
Income (loss) from operations....... (805) (1,804) (219) (6,983) 1,473
--------- --------- --------- --------- ---------
Other income (expense):
Interest expense.................. (73) (430) (809) (1,923) (1,445)
Equity in income of unconsolidated,
wholly owned subsidiary.......... - - - - 96
Interest and other income......... 1 15 28 313 211
--------- --------- --------- --------- ---------
Other income (expense), net.... (72) (415) (781) (1,610) (1,138)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary loss (877) (2,219) (1,000) (8,593) 335
Extraordinary loss, net of income taxes - - - (407) -
--------- --------- --------- --------- ---------
Net income (loss)................... $(877) $(2,219) $(1,000) $(9,000) $335
========= ========= ========= ========= =========
-17-
<PAGE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Dividends related to convertible
preferred stock................... $ - $ - $ - $(18) $(607)
========= ========= ========= ========= =========
Net loss attributable to common
stockholders...................... $(877) $(2,219) $(1,000) $(9,018) $(272)
========= ========= ========= ========= =========
Basic and diluted net loss per common
share............................. $(1.56) $(2.61) $(0.76) $(2.98) $(0.09)
========= ========= ========= ========= =========
Basic and diluted weighted average
common shares outstanding......... 560 850 1,314 3,029 3,221
========= ========= ========= ========= =========
Basic and diluted supplemental pro
forma net loss per common share
(1)............................... $(0.05)
=========
Basic and diluted supplemental pro
forma weighted average common shares
outstanding (1)................... 5,702
=========
BALANCE SHEET DATA:
Cash................................ 236 188 330 2 113
Working capital deficit............. (666) (2,191) (3,702) (3,358) (2,599)
Total assets........................ 1,316 2,911 2,429 2,520 4,365
Long-term liabilities............... 1,270 2,340 83 63 867
Total stockholders' deficit......... (986) (2,666) (2,441) (2,428) (24)
</TABLE>
(1) See Note 2 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in
computing per share data
-18-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following discussion should be read in conjunction with our
financial statements and notes thereto, included elsewhere in this prospectus.
This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including
those set forth under "Risk Factors," "Special Note Regarding Forward-Looking
Information" and elsewhere in this prospectus.
OVERVIEW
We design, assemble and market our eRoom System, an intelligent,
in-room computer platform and communications network. The eRoom System supports
our line of fully-automated and interactive Refreshment Centers and electronic
RoomSafes, and other proposed applications for use in the lodging and other
industries. Historically, we have installed our principal products, our
Refreshment Centers and RoomSafes, in hotels. Our proprietary eRoom System uses
our patented credit card technology that integrates with our file server located
at the hotel, or the eRoom file server.
HISTORICAL SUMMARY
We were originally incorporated under the laws of the State of North
Carolina on March 17, 1993 as InnSyst! Corporation. On September 28, 1993,
InnSyst! merged with and into RoomSystems, Inc., a Virginia corporation,
incorporated on August 12, 1993, or RoomSystems Virginia, whereby RoomSystems
Virginia was the surviving entity. On April 29, 1996, RoomSystems Virginia
merged with and into RoomSystems, Inc., a Nevada corporation, or RoomSystems.
Through an agreement and plan of reorganization approved by a majority of our
stockholders dated December 31, 1999, RoomSystems became the wholly owned
subsidiary of RoomSystems International Corporation. Pursuant to this agreement
and plan of reorganization, all shares of RoomSystems common stock, including
all shares of common stock underlying outstanding options and warrants, Series A
convertible preferred stock and Series B convertible preferred stock were
exchanged for the identical number and in the same form of securities of
RoomSystems International Corporation. On March 29, 2000, we changed our name to
eRoom System Technologies, Inc.
On September 28, 1999, our stockholders approved a reverse split of our
common stock, including all common stock underlying our outstanding options and
warrants, at the rate of one share for every two shares outstanding, or the 1999
Reverse Stock Split. Due to certain contractual anti-dilution rights which have
since been terminated, 1,471,000 shares of our common stock were excluded from
the 1999 Reverse Stock Split. The 1999 Reverse Stock Split did not affect our
Series A and Series B convertible preferred stock. The 1999 Reverse Stock Split
has been retroactively reflected in this prospectus.
On March 29, 2000, our stockholders approved the 2000 Reverse Stock
Split whereby all outstanding shares of our common stock, including all common
stock underlying our outstanding options and warrants, will be exchanged at a
rate of three shares for every four shares outstanding. The 2000 Reverse Stock
Split did not affect our Series A, Series B and Series C convertible preferred
stock and has been retroactively reflected in this prospectus.
We have two wholly owned subsidiaries, RoomSystems and RSi BRE, Inc. We
do not have control over RSi BRE. The board of directors of RSi BRE consists of
a majority of outside directors and may not make any cash distributions without
the unanimous approval of the board of directors.
DESCRIPTION OF REVENUES
We generate revenue from either the sale or revenue sharing of our
products. Under the revenue sharing agreements, we receive a portion of the
sales generated by our products and under certain agreements are guaranteed a
minimum daily revenue amount. We also generate revenues from maintenance and
support services.
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Historically, we have been restricted in our ability to market our
products due to limited working capital. Prior to 1998, our marketing efforts
focused primarily on selling our products. In 1998, as a result of the lodging
industry's general lack of available financing or capital for the purchase of
equipment, we modified our business model to emphasize our revenue sharing
program as our primary product placement program. As a result of our shift in
focus to our revenue sharing program, our gross revenues decreased in 1998 and
1999 and significantly greater capital requirements were added to our business
model. However, our revenue sharing program provides us with an ongoing
seven-year revenue stream under each revenue sharing agreement. Because our
customers in the lodging industry traditionally have limited capacity to finance
the purchase of our products, we designed our revenue sharing program to require
little or no upfront cost to our customers. We believe that our revenue sharing
program will increase future placements of our products; however, we cannot
assure that we will be successful in this effort.
We have experienced substantial fluctuations in revenues from
period-to-period as a result of limited working capital to fund the assembly of
our products and to maintain sufficient component inventories. In addition to
limited working capital, fluctuations in revenues have partially resulted from
the transition to our revenue sharing program under which revenues are
recognized over the seven-year life of the contract instead of immediately upon
installation of the product.
We expect that for the foreseeable future, the majority of our revenues
will result from the placement of our products pursuant to our revenue sharing
program, followed by sales and, to a lesser extent, from maintenance agreements.
We have installed more than 10,000 Refreshment Centers and 2,500
RoomSafes primarily in the United States, as well as in Brazil and the Bahamas.
We intend to continue to offer our products domestically and internationally to
the lodging industry, and tailor our products and services for introduction into
the healthcare, time-share and cruise line industries. We anticipate that a
significant portion of our future revenues will be derived from these markets;
however, we cannot assure you that we will be successful in this effort.
We also plan to increase our revenues in the foreseeable future by
bundling additional products and services with our current products, such as our
in-room energy management system, thin client network, high-speed wired and
wireless communications network allowing for Internet and intranet access, and
information management services. We anticipate that as the installation base of
our products increases, the marketability and value of the information we
collect and manage will increase. We also expect to generate revenue from the
packaging and marketing of our information-based data as our installation base
expands.
REVENUE RECOGNITION
Revenues from sales of our products are recognized upon completion of
installation and acceptance by the customer.
Revenues from the placement of our Refreshment Centers and RoomSafes
under our revenue sharing program are accounted for similar to an operating
lease with the revenues recognized as earned over the term of the agreement. In
some instances, our revenue sharing agreements provide for a guaranteed minimum
daily payment by the hotel.
We negotiate our portion of the revenues generated under our revenue
sharing program based upon the cost of the equipment installed and the estimated
daily sales per unit for the specific customer. We seek a targeted rate of
return.
We enter into installation, maintenance and license agreements with our
customers. Installation, maintenance and license revenues are recognized as the
services are performed, or pro rata over the service period. We defer all
revenue paid in advance relating to future services and products not yet
installed and accepted by our customers.
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We anticipate profit margins will increase as a result of greater
placement of our products pursuant to our revenue share program. We also expect
to improve our future profit margins if we are successful in obtaining revenues
through the sale of higher-priced, higher-margin, value added products such as
our proposed in-room energy management system, high-speed wired and wireless
communication network for use with the Internet and the intranet and our
information management services. Maintenance fees are expected to constitute a
greater percentage of total revenues in the future due to our focus on revenues
generated from our revenue sharing program, which requires maintenance
agreements.
DESCRIPTION OF EXPENSES
Cost of product sales consists primarily of production, shipping and
installation costs. Cost of revenue sharing arrangements consists primarily of
depreciation of capitalized costs for the products placed in service. We
capitalize the production, shipping, installation and sales commissions related
to the Refreshment Centers and RoomSafes placed under revenue sharing
agreements. Cost of maintenance fee revenues primarily consists of expenses
related to customer support and maintenance.
Selling, general and administrative expenses include selling expenses
consisting primarily of advertising, promotional activities, trade shows and
personnel-related expenses and general and administrative expenses consisting
primarily of professional fees, salaries and related costs for accounting,
administration, finance, human resources, information systems and legal
personnel.
Research and development expenses consist of payroll and related costs
for hardware and software engineers, quality assurance specialists, management
personnel, and the costs of materials used by these employees in the development
of new or enhanced product offerings.
In accordance with Financial Accounting Standards Board, or FASB,
Statement of Financial Accounting Standards, or SFAS, No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
development costs incurred in the research and development of new software
products to be sold, leased or otherwise marketed are expensed as incurred until
technological feasibility in the form of a working model has been established.
Internally generated capitalizable software development costs have not been
material to date. We have charged our software development costs to research and
development expense in our consolidated statements of operations.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as
a percentage of total revenues for the years indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Product sales.......................................... 90.6% 24.4%
Revenue share arrangements............................. 4.6 44.8
Maintenance fees....................................... 4.8 30.8
-------------- --------------
Total revenue....................................... 100.0 100.0
-------------- --------------
Cost of revenue:
Product sales.......................................... 70.3 19.9
Revenue share arrangements............................. 2.1 27.9
Maintenance............................................ 6.0 13.3
-------------- --------------
Total cost of revenue............................... 78.4 61.1
-------------- --------------
Gross margin.............................................. 21.6 38.9
-------------- --------------
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YEAR ENDED DECEMBER 31,
----------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Operating expenses:
Selling, general and administrative (exclusive of non-cash
compensation)......................................... 203.5 403.0
Research and development (exclusive of non-cash
compensation)......................................... 28.1 45.8
Non cash compensation expense (income)................. 480.3 (658.6)
-------------- --------------
Total operating expenses............................ 711.9 (209.8)
-------------- --------------
Income (loss) from operations............................. (690.3) 248.7
-------------- --------------
Other income (expense):
Interest expense....................................... (190.1) (243.8)
Equity in income of unconsolidated, wholly owned subsidiary -- 16.2
Interest and other income.............................. 30.9 35.6
-------------- --------------
Other expense, net.................................. (159.2) (192.1)
-------------- --------------
Income (loss) before income taxes and extraordinary
loss.................................................... (849.5) 56.6
Income (loss) before extraordinary loss................... (849.5) 56.6
Extraordinary loss, net of income taxes................... (40.3) --
-------------- --------------
Net income (loss)......................................... (889.8)% 56.6%
============== ==============
Dividends related to convertible preferred stock.......... (1.8) (102.5)
============== ==============
Net loss attributable to common stockholders.............. (891.6)% (45.9)%
============== ==============
</TABLE>
REVENUES
Product Sales -- Our product sales revenue was $916,650 in 1998 and
$144,282 in 1999, representing a decrease of $772,368, or 84%, from 1998 to
1999. During 1998, we shifted our focus from selling products to placing
products pursuant to our revenue sharing program. Additionally, during 1998, we
produced and placed approximately 2,000 refreshment centers under revenue share
arrangements which have been transferred to RSi BRE, an unconsolidated, wholly
owned subsidiary, pursuant to certain financing agreements. Because RSi BRE is
not consolidated, the related revenues are not included in our financial
statements. Rather, we record our equity in RSi BRE's income for each respective
period. The decrease from 1998 to 1999 was due to our transition from product
sales to placement of our products pursuant to our revenue sharing program, a
lack of sufficient working capital and an additional 436 refreshment centers
which were produced and installed in 1999, but which have been transferred to
RSi BRE.
Revenue Sharing Arrangements -- Our revenue from revenue sharing
arrangements was $46,524 in 1998 and $265,546 in 1999, representing an increase
of $219,022, or 471%, from 1998 to 1999. During 1998, we began placing products
under revenue sharing arrangements after we shifted our focus from sales of
products. The increase from 1998 to 1999 was due to our continuing transition
from product sales to placement of our products pursuant to our revenue sharing
program.
Maintenance Fee Revenues -- Our maintenance fee revenues were $48,288
in 1998 and $182,581 in 1999, representing an increase of $134,293, or 278%,
from 1998 to 1999. The increase from 1998 to 1999 was due primarily to
maintenance revenues we earn related to the Refreshment Centers owned by RSi
BRE. We perform the maintenance of the RSi BRE units and accordingly receive the
maintenance revenues. The increase is also due to our placement of additional
products pursuant to our revenue sharing program.
COST OF REVENUE
Cost of Product Sales Revenue -- Our cost of product sales revenue was
$711,355 in 1998 and $118,010 in 1999, representing a decrease of $593,345, or
83%, from 1998 to 1999. The gross margin percentage on product sales was 22% in
1998 and 18% in 1999. The decrease in gross margin percentage on product sales
from 1998 to
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1999 primarily resulted from further reductions in production and
corresponding increases in the cost per unit, and fixed costs from unapplied
overhead costs.
Cost of Revenue Sharing Revenue -- Our cost of revenue sharing
revenue was $21,104 in 1998 and $165,995 in 1999, representing an increase of
$144,891, or 687%, from 1998 to 1999. The gross margin percentage on revenue
sharing revenue was 55% in 1998 and 37% in 1999. The decrease in gross margin
percentage on revenue sharing revenue from 1998 to 1999 resulted from the
impact of placing more expensive Refreshment Centers, which included
RoomSafes, without a corresponding increase in the related revenues. When we
initially began including RoomSafes with Refreshment Centers, our intent was
that a separate charge would be paid by the hotel guest for use of the safe.
However, separate charges were not consistently implemented by the hotels.
Subsequently, we have adjusted the percentage of revenues allocated to us
when RoomSafes are included.
Cost of Maintenance Revenue -- Our cost of maintenance revenue was
$60,797 in 1998 and $78,518 in 1999 representing an increase of $17,721, or 29%,
from 1998 to 1999. The gross margin percentage on maintenance revenues was (26%)
in 1998 and 57% in 1999. The increase in gross margin percentage from 1998 to
1999 was mainly due to the placement of additional units which enabled us to
cover our fixed overhead costs.
OPERATING EXPENSES
Selling, General and Administrative -- Selling, general and
administrative expenses (exclusive of non-cash compensation expense (income))
were $2,058,150 in 1998 and $2,387,811 in 1999, representing an increase of
$329,661, or 16%, from 1998 to 1999. Selling, general and administrative
expenses represented 204% of our total revenues in 1998 and 403% of our total
revenues in 1999. The increase from 1998 to 1999 was primarily due to a
decrease in our common stock price that we were able to obtain from private
investors which resulted in our recording an allowance of approximately
$230,000 against certain notes receivable from stockholders that are secured
by shares of our common stock.
Research and Development Expenses--Research and development expenses
were $284,532 in 1998 and $271,231 in 1999, representing a decrease of
$13,301, or 5%, from 1998 to 1999. Research and development expenses
represented 28% of our total revenue in 1998 and 46% of our total revenue in
1999.
Non-Cash Compensation Expense (Income)--Non-cash compensation
expense was $4,858,105 in 1998 and non-cash compensation income was
$3,901,696 in 1999, representing a reversal of the expense of $3,901,696 from
1998 to 1999. During 1998, the estimated fair value of our common stock
increased resulting in compensation expense. During 1999, the estimated fair
value of our common stock declined resulting in the reversal of a portion of
the compensation expense previously recorded. The initial compensation
expense recorded in 1998 related to the issuance of 1,471,000 shares of
common stock to certain officers and a former consultant to us. During the
year ended December 31, 1998, we recognized compensation related to these
variable awards. As a result of a decline in the value of our common stock
during the year ended December 31, 1999, we reversed compensation expense
related to these awards.
Other Income (Expense), Net--Interest expense was $1,922,638 in 1998
and $1,444,532 in 1999, representing a decrease of $478,106, or 25%, from
1998 to 1999. The decrease is due primarily to the conversion of $2.3 million
of borrowings to equity during 1998 and the corresponding decrease in related
interest expense and amortization of deferred financing costs.
Income Taxes--As of December 31, 1999, we had net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $10 million that expire at various dates from 2008 to 2019. We
had net
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deferred tax assets, including our net operating loss carryforwards and other
temporary differences between book and tax deductions, total approximately
$3.8 million as of December 31, 1999. A valuation allowance in the amount of
$3.8 million has been recorded as of December 31, 1999 as a result of
uncertainties regarding the realizability of the net deferred tax assets.
DIVIDENDS RELATED TO CONVERTIBLE PREFERRED STOCK
Dividends related to convertible preferred stock were $18,542 in
1998 and $607,268 in 1999. The accrued dividends relate to our Series A and B
convertible preferred stock. During 1998 and 1999, we obtained equity capital
through the issuance of Series A and B convertible preferred stock which
provide for annual cumulative dividends of eight and six percent,
respectively. The dividends on the Series B convertible preferred stock are
payable in shares of common stock and represents $142,000 of the 1999 accrued
dividend. The Series A and Series B convertible preferred stock will convert
to common stock upon the closing of this offering. In connection with the
Series A convertible preferred stock, we will record an additional dividend
of $1.8 million upon conversion which represents the contingent beneficial
conversion feature that will accrue to the Series A convertible preferred
stockholders at the date of conversion. In addition, the holders of Series B
convertible preferred stock received a $1,249,008 beneficial conversion
feature at the date of issuance and an additional $2,498,016 beneficial
conversion feature on March 29, 2000 in connection with the 2000 Reverse
Stock Split. The modification of the conversion rate on April 12, 2000
requires the Company to recognize an additional beneficial conversion
feature. The beneficial conversion feature, as modified, is being accrued as
a dividend between the date of issuance of the Series B convertible preferred
stock and September 28, 2000, the date which the holders of Series B
convertible preferred stock have the right to convert their shares on a
1.5-for-1 basis.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had cash of $113,252 and a working capital
deficit of $2,598,726. As of December 31, 1998, we had cash of $1,850 and a
working capital deficit of $3,358,344. Increases in cash and the improvement in
the working capital deficit were the result of the net proceeds from our Series
B convertible preferred stock offering completed in September 1999 and the
proceeds from the issuance of promissory notes, offset by cash used in operating
activities, cash used to purchase Refreshment Centers, property and equipment,
and our investment in RSi BRE.
Our net cash used in operating activities for the year ended December
31, 1999 was $2,753,939. Cash used in operating activities was primarily
attributed to a net loss before the impact of non-cash compensation income of
$3,901,696. Our net cash used in operating activities for the year ended
December 31, 1998 was $2,931,871, mostly due to a net loss of $8,999,646. This
loss was partially attributable to non-cash compensation expense of $4,858,105,
a non-cash loss on debt extinquishment of $407,000, non-cash interest expense of
$777,666, amortization debt offering and financing costs of $605,236 and was
partially offset by interest accrued on notes receivable from stockholders of
$274,691.
Our primary investing activities have historically consisted of
expenditures relating to our revenue sharing program and for property and
equipment. Additionally in 1999, we invested $750,000 in RSi BRE. The
expenditures in 1999 for Refreshment Centers were $543,586 compared to $246,161
for 1998. We expect our investing activity to increase significantly in the
foreseeable future for the purchase of our products as we continue our focus on
our revenue sharing program. Additionally, we anticipate that we will experience
an increase in our capital expenditures and lease commitments for property and
equipment consistent with anticipated growth in operations, infrastructure and
personnel.
Our financing activities provided $2,900,872 and $4,171,163 for the
years ended December 31, 1998 and 1999, respectively. In 1999, cash provided
by financing activities consisted of $3,584,256 from the sale of preferred
stock, $792,547 from borrowings, and $299,195 from notes payable to officers
and stockholders. In 1999, cash used for financing activities consisted of
$401,080 of payments on borrowings, $15,755 of payments on capital lease
obligations, and $88,000 of deferred offering costs. In 1998, cash provided
by financing activities consisted of $2,265,058 from borrowings and $390,043
and $600,275 from the sale of common and preferred stock, respectively. In
1998, cash used for financing activities consisted of $127,971 of payments on
borrowings, $12,500 of payments on notes payable to stockholder and officer,
$9,190 of payments on capital lease obligations and $204,843 of miscellaneous
offering costs.
During 1999, we entered into an exclusive post-installation financing
arrangement with an equipment financier to provide funding for products which we
place with customers under revenue sharing agreements. Under
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the terms of the financing arrangement, the equipment financier will fund up
to 150% of the cost to purchase, assemble and install each product that has
been in service for 90 days subject to the property meeting certain minimum
performance, occupancy and liquidity requirements. We are obligated to repay
the financing over seven years, with a formula-based variable interest rate.
As part of the financing, eRoom will form a new entity, RSi SPE, Inc., a
Nevada corporation and wholly owned subsidiary. RSi SPE will own all the
products funded by the equipment financier as well as those under revenue
sharing agreements. The equipment financier will take a senior security
interest in the products financed under the financing agreement.
As of December 31, 1999, our debt, secured by our assets, consisted
of $130,000 in notes issued in a 1996 private debt offering, $431,750 in
notes issued in a 1997 private debt/equity offering, $35,115 in notes issued
in a 1999 private debt offering, a $1,555,544 note payable to RSG
Investments, LLC, or RSG Investments, and a $100,000 note payable to an
individual. As of December 31, 1999, our unsecured debt consisted of a
$102,290 note payable to a corporation for services performed, $11,719 in
notes payable to a bank and secured by vehicles, a $6,062 unsecured note to
an individual, as well as $75,126 of capital lease obligations. As of
December 31, 1999, we had an accumulated deficit of $14,531,491, and we were
in default under certain debt obligations. Additionally, we were past due
with several of our accounts payable vendors which could affect our ability
to procure inventory and services for our operations. We need to obtain
additional financing to fund payment of past due and current debt obligations
and to provide working capital for operations.
We believe that our current cash on hand, after receiving
approximately $869,250 of net proceeds from the sale of units consisting of
Series C convertible preferred stock, convertible promissory notes and
warrants to purchase common stock, the $500,000 loan dated February 15, 2000
from Ash Capital, LLC, or Ash Capital, the $1.5 million bridge loan dated
April 13, 2000 from a group of investors, together with the net proceeds from
this offering will be sufficient to meet our capital expenditures and working
capital requirements, including those from our planned expansion, for at
least the next twelve months. However, we may need to raise additional funds
to support more rapid expansion, respond to competitive pressures, invest in
our new technology offerings and other product offerings or respond to
unanticipated requirements. We cannot assure you that additional funding will
be available to us in amounts or on terms acceptable to us. If sufficient
funds are not available or are not available on acceptable terms, our ability
to fund our expansion, take advantage of additional product development
opportunities, develop or enhance our products or services, or otherwise
respond to competitive pressures would be significantly limited.
PRIOR PRIVATE PLACEMENTS AND FINANCINGS
Since our incorporation, we have funded our operations primarily
through loans and through sales of our common and preferred stock.
From July 1996 through March 1997, we raised gross proceeds of
$1,470,000 from a private placement of promissory notes secured by our
assets. Each $20,000 promissory note had a term of one year and was
accompanied by a warrant to purchase 3,300 shares of common stock at $2.67
per share exercisable for the lesser of five years or three years from the
close of this offering. We issued warrants to purchase a total of 242,550
shares of common stock to investors and warrants to purchase 86,250 shares of
common stock to our placement agent. The promissory notes were all in default
as of January 1998. In order to avoid foreclosure on our assets, we issued to
the holders of these promissory notes warrants to purchase an aggregate of
61,629 shares of common stock at $2.67 per share and an aggregate of 13,781
shares of common stock. Subsequently, in 1998, holders of promissory notes in
the aggregate original principal amount of $1,040,000 converted their
promissory notes into 208,000 shares of Series A convertible preferred stock
and, in 1999, holders of promissory notes in the aggregate original principal
amount of $300,000 converted their promissory notes and accrued interest into
119,374 shares of Series B convertible preferred stock. We issued 13,125
shares of common stock to the placement agent for assisting in the conversion
of promissory notes into Series A convertible preferred stock. As of March
31, 2000, the outstanding promissory notes consisted of $130,000 in principal
and $38,959 of accrued interest and were accruing, collectively, warrants to
purchase 644 shares of common stock per month until paid in full. Although
all of the outstanding promissory notes are in default, we intend to pay off
these promissory notes from the proceeds of this offering.
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From April 1997 through December 1997, we realized gross proceeds of
$1,986,000 from a private placement of units, where each $10,000 unit consisted
of 938 shares of common stock and a 15% secured promissory note in the principal
amount of $5,000. We issued our placement agent 24,018 shares of common stock
and our merchant banker 139,846 shares of common stock in exchange for services
related to this private placement. In September 1998, holders of promissory
notes in the aggregate original principal amount of $115,000 converted their
promissory notes and accrued interest into 11,665 shares of common stock. Then,
in May 1999, holders of promissory notes in the aggregate original principal
amount of $425,051 converted their promissory notes and accrued interest into
173,976 shares of Series B convertible preferred stock. As of March 31, 2000,
outstanding promissory notes consisted of $431,750 in principal and $159,480 of
accrued interest. Although all of the outstanding promissory notes are in
default, we intend to pay off these promissory notes from the proceeds of this
offering.
In May 1997, we received a loan in the original principal amount of
$100,000 from an individual bearing interest at the rate of 15% per annum with a
one year term. We issued 7,125 shares of common stock in connection with this
note. As of March 31, 2000, our obligation was $130,417 including accrued
interest. We intend to pay off this promissory note from the proceeds of this
offering.
From January 1998 through March 1998, we received gross proceeds of
$760,000 from the sale of Series A convertible preferred stock. In addition,
$1,040,000 of outstanding promissory notes were converted into 208,000 shares of
our Series A convertible preferred stock. We issued warrants to purchase 6,840
shares of common stock exercisable at $16.00 per share, and 13,125 shares of
common stock valued at $10.67 per share, to our placement agent. Pursuant to the
terms of our Series A convertible preferred stock, dividends of 8% per annum
began to accrue on November 14, 1998. As of March 31, 2000, holders of Series A
convertible preferred stock were owed dividends of $198,444, collectively. We
intend to pay such dividends from the proceeds of this offering.
From January 1998 through March 1998, we realized gross proceeds of
$379,000 from a private placement of our common stock at $10.67 per share. We
issued 35,531 shares of common stock to investors and warrants to purchase 4,264
shares of common stock at $12.80 per share to our placement agent.
In April 1998, we issued a $100,000 short-term promissory note to an
investor which was subsequently converted into 9,375 shares of common stock
at a price of $10.67 per share. In addition, this investor was granted an
additional 1,500 shares of common stock as an inducement to convert the
promissory note, which was valued at $10.67 per share and recorded as
additional interest expense in 1998.
From May 1998 through August 1998, we received gross proceeds of
$561,520 from a private placement of 60-day promissory notes convertible into
shares of common stock at maturity at $10.67 per share. These promissory
notes and accrued interest were converted into 54,296 shares of common stock.
We issued 7,875 shares of common stock as a finder's fee.
On July 19, 1998, we received a loan of $1,500,000 from RSG
Investments. Although we were obligated to repay the funds by January 30,
1999, we defaulted and remained in default until we entered into a settlement
agreement with RSG Investments on September 28, 1999. After the repayment of
a portion of the obligation and the conversion of a portion of the obligation
into shares of Series B convertible preferred stock, we remain obligated to
RSG Investments in the principal amount of $750,000. As of March 31, 2000, we
owe RSG Investments $750,000 in principal plus accrued interest which we
intend to payoff from the proceeds of this offering.
From February 1999 through May 1999, we received gross proceeds of
$350,000 from the private placement of 90-day promissory notes. These promissory
notes have an interest rate of 15% per annum and accrue common stock at a rate
of 38 shares every 30 days for every $1,000 of principal outstanding.
Subsequently, promissory notes in the aggregate original principal amount of
$134,885 have been repaid and promissory notes in the aggregate original
principal amount of $180,000 plus interest have been converted into 61,432
shares of Series B convertible preferred stock. As of March 31, 2000, we have
issued 50,137 shares of common stock as interest and have $35,115 in outstanding
principal and $7,947 of accrued interest. The promissory notes are in default.
We intend to pay off these promissory notes with the proceeds realized from this
offering.
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From March 1999 through October 1999, we conducted a private
placement of our Series B convertible preferred stock at $3.00 per share.
Through this private placement, we issued 1,355,047 shares of Series B
convertible preferred stock in exchange for cash subscriptions of $4,065,133
and 726,633 shares of Series B convertible preferred stock in exchange for
certain outstanding promissory notes, unpaid salaries to certain officers and
$500,000 due to RSG Investments.
On February 15, 2000, we received a $500,000 loan from Ash Capital. Dr.
Alan C. Ashton is a director designee of eRoom and owns 100% of Ash Capital. The
Ash Capital loan is evidenced by a promissory note bearing simple interest at
the rate of 10% per annum, payable on May 31, 2000, and secured by our assets.
Ash Capital was issued a warrant to purchase 18,750 shares of common stock
exercisable at $4.80 per share through the second anniversary date of the close
of this offering. The Ash Capital loan will be repaid from the sale of certain
Refreshment Centers.
From March 2000 through April 12, 2000, we conducted a private
placement of $100,000 units consisting of a 7% convertible promissory note in
the original principal amount of $25,000, 23,077 shares of Series C convertible
preferred stock and a warrant to purchase 5,000 shares of common stock at an
exercise price of $6.60 per share. Through this private placement, we raised
gross proceeds of $950,000, issued promissory notes in the original principal
amount of $237,500, issued 219,227 shares of Series C convertible preferred
stock and issued warrants to purchase 47,500 shares of common stock.
On April 13, 2000, we received the Bridge Loan in the principal amount
of $1,500,000. The Bridge Loan is evidenced by a promissory note, or the Bridge
Note, and bears interest at the rate of nine percent per annum. The Bridge Loan
matures on the earlier of the closing of this offering or October 12, 2000. In
addition, we issued 200,000 shares of our common stock as part of the Bridge
Loan transaction.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," or SFAS 133. SFAS 133 establishes new
accounting and reporting standards for companies to report information about
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. This statement is effective for financial statements issued for all
fiscal quarters of fiscal years beginning after June 15, 2000. We do not expect
this statement to have a material impact on our results of operations, financial
position or liquidity.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our products and services are primarily developed in the United States,
however, a significant component of our Refreshment Centers are manufactured in
Italy. Our products are marketed in the United States, the Bahamas and Brazil,
and we intend to further expand our marketing to the international lodging
market and to other industries domestically and internationally. As a result,
our financial results could be affected by changes in foreign currency exchange
rates or weak economic conditions in foreign markets. Because all of our
revenues are currently denominated in U.S. Dollars, a strengthening of the
dollar could make our products less competitive in foreign markets.
As time passes and as management sees fit, certain future transactions
in Europe and Asia may be denominated in local currencies. As we expand
operations internationally, we will continue to evaluate our foreign currency
exposures and risks and develop appropriate hedging or other strategies to
manage those risks. We have not revised our current business practices to
conform to Europe's conversion to the Euro. We have not modified any of our
products to address Europe's conversion to the Euro.
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<PAGE>
BUSINESS
OVERVIEW
eRoom has developed and introduced to the lodging industry what we
believe is the only intelligent, in-room computerized platform and
communications network. The eRoom System supports our Refreshment Centers,
RoomSafes and other applications. These other applications include in-room
management capabilities, information management services, direct credit card
billing and network access solutions.
Our eRoom System delivers in-room solutions that reduce operating
costs, enhance hotel guest satisfaction and provide higher operating profits to
our customers. The solutions offered by our eRoom System and related products
have allowed us to establish relationships with premier hotel chains. We have
installed more than 10,000 Refreshment Centers and 2,500 RoomSafes in over
10,000 hotel rooms, including many of Marriott International's flagship
properties, such as the New York Marriott Marquis, the J.W. Marriott in
Washington D.C., the Marriott Camelback Inn, and others. We have an exclusive
contract with the purchasing subsidiary of Promus Hotel Corporation (operator of
Doubletree Hotels, Embassy Suites and Hampton Inn), which was recently purchased
by Hilton Hotels Corporation. We are negotiating with Bass Hotels (operator of
Holiday Inn, Crowne Plaza and the Hotel Inter-Continental) and Carlson
Hospitality Worldwide (operator of Radisson Hotels Worldwide, Regent
International Hotels and Country Inns and Suites) to become their exclusive or
preferred vendor. We have also installed our products in the Hilton, Best
Western, Ramada and other established hotel chains. We believe that these
relationships provide us with the opportunity to install our eRoom System
worldwide, while our enabling technologies will provide for a natural expansion
of our products and services into the healthcare, time-share and cruise line
industries.
Our business model focuses on our revenue sharing program that allows
us to partner with our customers with respect to our products. Through our
revenue sharing program, we install our products at little or no upfront cost to
our customers and share in the recurring revenues generated from sales of goods
and services related to our products.
LODGING MARKET
According to the 1999 HORWATH WORLDWIDE HOTEL INDUSTRY STUDY, the
worldwide hotel marketplace consists of approximately 11.7 million hotel rooms.
The regions below contain the following number of hotel rooms:
<TABLE>
<CAPTION>
REGION HOTEL ROOMS
----------------------------------- ------------------------
<S> <C>
Europe 4.7 million
United States 3.5 million
Central and South America 1.5 million
Asia 1.5 million
Other regions 0.5 million
------------------------
TOTAL 11.7 MILLION
------------------------
</TABLE>
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<PAGE>
Of these 11.7 million hotel rooms, approximately three million hotel
rooms are owned, managed or franchised by the ten largest hotel chains, as
follows:
<TABLE>
<CAPTION>
ROOMS ROOMS
UNITED INTER-
HOTEL CHAIN TOTAL ROOMS STATES NATIONAL REPRESENTATIVE BRANDS
--------------- ------------- ------------- ------------ -----------------------------------------------
<S> <C> <C> <C> <C>
Cendant 529,000 482,000 47,000 Ramada, Days Inn and Howard Johnson
Bass Hotels 461,000 341,000 120,000 Holiday Inn, Crowne Plaza and the Hotel
Inter-Continental
Marriott International 328,000 258,000 70,000 Ritz-Carlton, Marriott, Renaissance and
Residence Inn
Accor 326,000 87,000 239,000 Sofitel, Novatel and Red Roof Inns
Choice Hotels 305,000 252,000 53,000 Comfort Inns & Suites, Clarion and
Econolodge
Best Western 302,000 187,000 115,000 Best Western
International
Hilton Hotels 277,000 270,000 7,000 Hilton, Doubletree Hotels, Embassy
Corporation Suites and Hampton Inn
Starwood Hotels 225,000 146,000 79,000 Sheraton, Westin and St. Regis
Carlson Hospitality 106,000 66,000 40,000 Radisson Hotels Worldwide, Regent
Worldwide International Hotels and Country Inns
and Suites
Hyatt Hotels 80,000 55,000 25,000 Hyatt and Hyatt Regency
------------- ------------- ------------
TOTAL 2,939,000 2,144,000 795,000
============= ============= ============
</TABLE>
SOURCES: 1999 DIRECTORY OF HOTEL & MOTEL COMPANIES; HOTELS MAGAZINE - CORPORATE
300 RANKING, JULY 1999; TRAVEL RESEARCH INTERNATIONAL LIMITED; LODGING
HOSPITALITY MAGAZINE - THE BRANDS REPORT, AUGUST 1999.
Of the hotel chains listed above, we have installed more than 9,000
Refreshment Centers and 2,500 RoomSafes in hotels operated by Marriott
International, Best Western International, Cendant, Bass Hotels and Hilton
Hotels Corporation.
Many hotel properties are rated through either Automobile Association
of America's diamond rating or Mobil's star rating. In order to obtain a four-
or five-diamond rating from Automobile Association of America, the hotel
properties are required to have minibars in all of their hotel rooms. Under
Mobil's star-rating, the presence of minibars in a property's hotel rooms
provides points that can be used toward a four- or five-star rating. Therefore,
we believe that we can market our products to the lodging industry as an in-room
amenity to enhance a hotel's ability to receive a four- or five-diamond rating
or a four- or five-star rating.
OUR PRODUCTS AND SERVICES
eROOM SYSTEM
Since our inception, it has been our objective to innovate the in-room
amenities offered by the lodging industry. Our proprietary technologies create
an intelligent, in-room computerized platform and communications network that
comprise our eRoom System. At the core of our eRoom System is our proprietary
hardware and software that operate as a multi-tasking imbedded operating system.
Our hardware and software can operate multiple devices and provide an
interactive environment. The interactive environment provided through our eRoom
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<PAGE>
System allows the hotel guest to input and receive information. Interactive
features for the hotel guest include locking and unlocking our products,
receiving pricing information from the liquid crystal display as well as
other functions. The eRoom System provides the communication link between the
hotel guest, our products, the eRoom file server, and the file server located
at our headquarters, or the eRoom master file server. Our software is
remotely upgradable from our facilities. We can also remotely adjust prices,
change messages on the liquid crystal display and change the input touchpad
layout. From our facilities, we can lock our products in the event a
participating hotel fails to pay any fees or otherwise violates the terms of
its agreement, as well as determine whether our products are active and
working properly.
The eRoom System consists of a microprocessor, memory, input/output
ports, communications transceiver, liquid crystal display, touchpad, power
supply and our proprietary software. The proprietary architecture of our circuit
boards has been designed to minimize the need for hardware upgrades. The eRoom
System includes an embedded system processor that handles simple instructions
and routes all billing functions and processor-intensive instructions to the
eRoom file server.
The eRoom System provides a platform that collects information relating
to the usage of our products. The eRoom System is capable of supporting other
functions such as the management of in-room energy, including heating, air
conditioning, lighting and television and the establishment of a
trouble-shooting system to manage in-room repairs and maintenance. Another
extension of the eRoom System is a direct credit card billing process for the
healthcare and time-share industries.
REFRESHMENT CENTERS
Historically, our primary source of revenue has been from the sale or
revenue sharing of our Refreshment Centers. We currently have orders on-hand for
approximately 6,800 Refreshment Centers, 4,400 of which include RoomSafes. Sales
orders account for approximately 2,100 Refreshment Centers and approximately 900
RoomSafes, which will generate approximately $2.1 million of product sales.
Products to be placed under revenue sharing agreements include approximately
4,700 Refreshment Centers and approximately 3,500 RoomSafes. Refreshment Centers
are modular in design and consist of our eRoom System, a small compression or
thermoelectric refrigeration unit and our unique multi-vending rack. Our
multi-vending rack maintains a full appearance through a gravity-based design
and displays up to 33 different beverages and/or snacks. The repair or
replacement of any component of our Refreshment Center is relatively simple and
is provided at no additional charge to the property. The Refreshment Center
communicates through the eRoom System, which uses the hotel's existing telephone
lines, cable television lines or electrical power outlets.
Our Refreshment Centers operate as follows:
- A hotel guest selects a beverage or snack from our Refreshment
Center;
- The purchase is immediately confirmed on the liquid crystal
display and acknowledged by an audible beep;
- The transaction information (product type, price and time of
purchase) is simultaneously transferred to the eRoom file
server;
- The eRoom file server communicates on a real-time basis with
the hotel's property management system and periodically with
our eRoom master file server; and
- The hotel's property management system posts the purchase to
the hotel guest's room account.
The sales data from the eRoom System is transmitted to the eRoom file
server from which the hotel can access periodic sales activities, inventory
levels for restocking purposes and demographic data.
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<PAGE>
ROOMSAFE
Our RoomSafes are electronic in-room safes offered in conjunction with
our eRoom System. The RoomSafes include an encrypted combination that can be
changed by the hotel guest. The RoomSafes have storage space large enough for
laptop computers, video cameras and briefcases. The RoomSafe utilizes the eRoom
System to interface with the eRoom file server which, in turn, communicates with
the hotel's property management system.
A common problem with in-room safes occurs at checkout when a guest may
leave the safe locked or forget to remove his or her valuables. With our
competitors' room safes, the locked safe would typically go unnoticed until a
subsequent hotel guest attempts to use the safe. Through the eRoom System, our
RoomSafe automatically notifies the hotel at checkout that the safe door is
locked, providing the guest with an opportunity to remove any valuables before
leaving the hotel.
THE FOLLOWING DIAGRAM REPRESENTS THE STRUCTURE AND COMMUNICATIONS NETWORK OF OUR
eROOM SYSTEM, THE eROOM FILE SERVER, THE HOTEL PROPERTY MANAGEMENT SYSTEM, AND
THE eROOM MASTER FILE SERVER:
[CHART OMITTED]
INFORMATION MANAGEMENT SERVICES
One of the byproducts of our technology is the information we have
collected since our first product installation. To date, we have collected over
eleven million room-nights of data. The eRoom file server collects information
regarding the usage of our Refreshment Centers on a real-time basis. We use this
information to help our customers increase their operational efficiencies. The
information we obtain is unique because we categorize the information according
to specific consumer buying patterns and demographics.
The information we collect has value in several key areas. First, we
currently offer our customers, as part of our service and maintenance agreement,
specific information about their guests' buying patterns and provide
non-confidential information about other hotels in similar geographic regions.
Second, as we continue to increase our installed room base, we believe that the
information we collect will have value to the suppliers of goods sold in our
Refreshment Centers, such as Coca-Cola, PepsiCo, Anheuser-Busch, Miller Brewing,
Frito-Lay, Mars and others. Third, we are developing information services to
categorize purchases in response to specific in-room advertising programs by
such suppliers.
Our lodging customers benefit in various ways from the information we
provide. The hotels are responsible for restocking the goods sold from our
Refreshment Centers. The real-time sales data generated by our Refreshment
Centers helps the hotel to maximize personnel efficiencies. The transfer of
sales data to the hotel prevents guest pilferage and minimizes disputes over
refreshment center usage, both of which are prevalent in the lodging industry.
Finally, the ability to track product sales performance allows the hotel to
stock the Refreshment Centers with more popular items, which generally leads to
increased sales of product from the Refreshment Centers.
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<PAGE>
Our system can provide reports on, among other things, daily restocking
requirements, product sales statistics showing daily, monthly and annual
statistics, overnight audits, inventory control and a variety of customized
reports.
The chart below is an example of the type of information we can collect
from a property where our products are installed:
[CHART OMITTED]
As indicated above, a supplier of goods will be able to determine its
market share by property and geographic region. We are developing an
Internet-based system where suppliers will be able to track product movement,
market share and other information by country, region, state, city or property
type.
We intend to develop strategic relationships with companies in the
information services industry in order to maximize our proprietary information.
S. Leslie Flegel will join our Board upon the closing of this offering to assist
us in packaging and marketing our proprietary information. Mr. Flegel is the
Chief Executive Officer and Chairman of the Board of The Source Information
Management Company (Nasdaq NM: SORC), a leading provider of information and
management services in the United States and Canada. In addition, we will
consider utilizing one or more other companies to assist us in the roll-out of
our information services products.
FUTURE PRODUCTS AND SERVICES
Our research and development and marketing departments are analyzing
additional value added products and services to be delivered to our customers
using the platform of our eRoom System. We believe that such additional products
and services can be bundled with our eRoom System or separately marketed to
lodging industry customers to provide additional revenue sources for us.
Although the development and delivery schedules vary for each new product and
service, we believe that each of the following will be ready for marketing
within the next twelve months:
WIRELESS COMMUNICATIONS NETWORK. We intend to offer a high-speed (11
mega bits per second, or mbps) wireless communications solution that is designed
to allow guests the option of using their laptop computers to roam throughout a
property while connected to the property's network for Internet or intranet use.
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<PAGE>
We have signed a letter of intent with a wireless network provider for
the exclusive use of its product in the lodging, healthcare, time-share and
cruise line industries. This network consists of a master antenna with a range
of up to 150 feet in any direction. In larger properties, these master antennas
can be linked together to create a wireless communications network similar to a
cellular telephone network on a smaller scale. To obtain wireless network
access, guests can rent a PCMCIA card for their laptop computers from the
hotel's front desk. PCMCIA cards provide wireless connectivity through a
built-in transceiver and are compatible with PC and Macintosh computers.
CREDIT CARD/SMART CARD. Our eRoom System has the capability to support
standard credit card and smart card readers for direct billing to a customer's
credit card, as well as other point of sale and automated teller-type functions.
When we enter the healthcare and time-share industries, we will offer a direct
credit card billing process. By placing a credit card reader adjacent to a
hospital bed or in a time-share room, we can offer a billing solution previously
unavailable. This billing process will allow healthcare and time-share
properties to offer services and products similar to those found in hotel rooms,
such as Refreshment Centers, RoomSafes, on-demand movies, direct dial long
distance, Internet access and video games. We hold three patents for a credit
card point of sale terminal technology that supplies billing solutions for these
services.
HIGH SPEED NETWORK COMMUNICATION. We intend to increase the speed of
our existing communications network to 10 mbps. With a high-speed network in
place, we could offer our customers a low-cost in-room thin client platform.
This platform consists of a monitor, keyboard and an interpreter which will
allow for access to the Internet or an intranet. In addition, the high-speed
network could be used as an Ethernet port for laptop users to access the
Internet or an intranet.
eROOM ENERGY MANAGEMENT. We are developing a technology by which our
eRoom System will detect in-room movement through heat and/or motion sensors.
Our eRoom System will control other devices in the room through an infrared
communications portal. This technology is being developed for the lodging
industry as a means of offering an energy management system. When a room is
occupied, our eRoom System will give the guest complete control of the heating
and air conditioning, lighting, television and other facilities in the room.
When the room is unoccupied, the eRoom System will control each of these systems
and adjust each according to the most energy efficient settings. When a guest
opens the door to re-enter the room, our eRoom System will adjust all devices to
their original settings. By adjusting the heating and air conditioning either up
or down (typically 5 to 10 degrees, depending on the time of year) and turning
off the television and lights when a room is unoccupied, a hotel or other
facility can realize energy cost savings.
REMOTE ENGINEERING AND MAINTENANCE. Through the eRoom System, we also
intend to offer remote engineering and housekeeping management services. The
eRoom System links each room to other areas of the property. By connecting each
room to the front desk and to the engineering and housekeeping departments, we
will create a management tool and communication link. When an in-room
maintenance problem is discovered by housekeeping or engineering, the hotel
employee can enter a code on the touchpad of our eRoom System, which will
transmit the information to engineering and inform the front desk of a problem.
If the problem is of a material nature, the front desk can hold the room until
the repairs have been made. As soon as the problem is resolved, housekeeping or
engineering will enter a code that notifies the front desk that the room has
been repaired and is available for a guest.
SALES AND MARKETING
Our sales and marketing program consists of the following strategic
initiatives:
DEPLOYMENT OF AN EXPANDED REGIONAL SALES FORCE. Our initial strategy is
to hire four additional full-time employees as regional sales managers in the
United States. We currently employ two regional sales managers and retain four
independent sales representatives.
DEVELOPMENT OF AN IN-HOUSE SALES DEPARTMENT. We intend to develop an
in-house sales department whose primary objective will be to focus on the
limited-service hotel sector. Each inside sales person will have a certain
geographic responsibility and will work in concert with their respective
regional sales managers. This approach should allow eRoom to increase its market
penetration by targeting mid-scale through luxury-class properties throughout
highly concentrated hotel markets within the United States.
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<PAGE>
CONTINUED MARKETING OF THE REVENUE SHARING PROGRAM. Emphasis on our
revenue sharing program is a critical part of our sales and marketing strategy.
Historically, the lodging industry has been resistant to purchase our products
because of the initial capital expenditure required. In addition to product
sales, we now offer our products through a revenue sharing program. Our revenue
sharing program allows us to become partners with our hotel clients by
installing our products at little or no upfront cost to the hotel and sharing
the revenues generated from goods sold from, and usage of, our products. Our
equipment financier will finance up to 150% of our costs of our products placed
under our revenue sharing program, subject to satisfaction of certain funding
requirements. Our products will secure the financing of the equipment
financier, which is payable over seven years.
CONTINUED IMPLEMENTATION OF THE CORPORATE ACCOUNT STRATEGY. Our
corporate account strategy involves the research, documentation and
implementation of plans associated with hotel chains, brands, management
companies and real estate investment trusts. Through this strategy, we propose
to enter into a corporate agreement that defines the relationship between eRoom
and the respective corporate entity. Although the franchisees of these corporate
hotel chains may not be required to purchase our products or have them placed on
a revenue sharing basis, the corporate entity would recommend to its franchisees
the use of our products. We anticipate that by the end of 2001, the majority of
all sales and revenue sharing agreements will be generated indirectly as a
result of our corporate account strategy.
We have an exclusive vendor relationship with the purchasing subsidiary
for Promus Hotel Corporation. Promus has agreed to use its best efforts to cause
our eRoom System and related products to be installed in up to 71,000 of its
corporate-owned and franchised hotel rooms. We have also installed our eRoom
System in a number of flagship properties for Marriott International, including
the New York Marriott Marquis, the J.W. Marriott in Washington, D.C., the J.W.
Marriott Lennox in Atlanta, the Marriott Camelback Inn and others. In June 2000,
we are scheduled to install our products into another Marriott flagship
property, the new J.W. Marriott in Miami. The impetus for our strong presence in
Marriott's flagship properties began when we were invited to participate in a
200,000 room-night test against our competitors over an 18-month period to
determine which company's products would earn the right to be selected as the
"refreshment center" of choice. Marriott's results revealed that our
fully-automated Refreshment Centers outperformed all other refreshment centers.
Subsequently, we were designated as Marriott's automated system of choice.
We were recently selected a recommended vendor for Carlson Worldwide
Hospitality, representing Radisson Hotels Worldwide, Regent International and
Country Inns and Suites. In addition, in May 2000 we intend to install, on a
trial-basis, our eRoom System and related products in The Bellagio -The Resort,
the flagship hotel-casino of Mirage Resorts, Inc. (NYSE: MIR). We are currently
in negotiations with other major hotel-casinos for placement of our products. We
are targeting Las Vegas given it has the most hotel rooms of any city in the
world, with approximately 115,000 rooms.
CREATION AND ENHANCEMENT OF STRATEGIC MARKETING ALLIANCES. In
conjunction with our corporate account strategy, our objective is to enter into
a number of marketing alliance plans. A marketing alliance plan is a strategic
relationship with a third-party whereby a finder's fee is paid to the party for
its efforts in closing a sale or revenue sharing transaction.
IMPLEMENTATION OF A COMPREHENSIVE DOMESTIC AND INTERNATIONAL MARKETING
PLAN. We are implementing a comprehensive marketing strategy. We have entered
into an agreement with Hall Communications, Inc. of Las Vegas, Nevada to provide
us with brochures, corporate name and logo development, an interactive website,
signage, a trade show booth, corporate video and compact disk presentations,
media advertisements and other services relative to product design and corporate
communications.
We intend to implement our international marketing strategy utilizing
the core marketing structure that we are developing domestically, including
website, support materials, trade show materials, industry specific
advertisements, to support our global growth strategy. eRoom has a signed letter
of intent with a Caribbean-based company authorizing it to serve as a limited
distributor of our products in the Caribbean. We are also negotiating with
potential distributors in Europe.
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<PAGE>
We intend to hire a Director of Marketing who will oversee our
advertising and promotional efforts by primarily utilizing hospitality trade
publications. Our objective is to establish an international presence through
partnering with various trade publications. In addition, we plan to attend trade
shows and pursue promotional activities through a strong public-relations
program.
EXPANSION INTO THE HEALTHCARE, TIME-SHARE AND CRUISE LINE INDUSTRIES
We believe that the healthcare industry is a natural extension for
our eRoom System, our related products and our patented credit card
technology. We will be able to provide healthcare facilities with a
comprehensive room information and management system that will allow them to
provide patients with a wide array of in-room amenities not available in the
past. These amenities include Refreshment Centers, RoomSafes, direct dial
long distance, on-demand movies, Internet access and other products and
services commonly found in a hotel room. We have completed a beta-test at the
Miami Heart Institute, a facility managed by Columbia HCA, and have an
agreement with Miami Heart Institute to install our eRoom System, Refreshment
Centers and RoomSafes and to provide the billing process for direct dial long
distance and on-demand movies through third-party suppliers.
Our installation at the Miami Heart Institute should occur in the second
half of 2000.
We also believe the same opportunities exist in the time-share industry
because most time-share facilities do not have a front desk or a property
management system to bill for in-room services. By offering a direct credit card
billing system a time-share facility can offer the same services available in
hotels.
We are also currently exploring the design and engineering parameters
necessary to offer our products and services to the cruise line industry.
COMPETITION
eROOM SYSTEM. We may face competition from companies that have longer
operating histories, larger customer bases, greater brand recognition and
greater financial, research and development, manufacturing, marketing and
technical resources. These companies could use their existing products to
provide in-room services to the lodging industry. For example, certain companies
that provide access to movies, video games, account review and in-room checkout
may expand their services in the future.
REFRESHMENT CENTERS. We face competition from suppliers of
semi-automated minibars and honor bars. These companies may have stronger
relationships within the lodging industry, longer operating histories, larger
customer bases, greater brand recognition and greater financial, research and
development, manufacturing, marketing and technical resources.
ROOMSAFES. There are many strong competitors in the in-room safe
industry. Although these competitors only offer stand-alone safes, these
companies may have longer operating histories, larger customer bases, greater
brand recognition and greater financial, research and development,
manufacturing, marketing and technical resources.
INFORMATION MANAGEMENT SERVICES. Many companies currently providing
information management services may have longer operating histories, larger
customer bases and greater financial resources. However, we believe that we are
the only company currently gathering and disseminating information to properties
with respect to the in-room use of Refreshment Centers and the in-room use of
other services.
WIRELESS COMMUNICATION NETWORK. There are an increasing number of
competitors in the wireless telecommunications industry in the United States and
throughout the world. Although implementation of advanced wireless communication
networks is still in the early stages in the lodging and guest-related
industries, we believe that competition for these properties will intensify as
other businesses realize the profit potential of designing and implementing
wireless communication network services within such facilities. Even though we
intend to employ relatively new technologies, there may be a continuing
competitive threat from even newer technologies. We also expect that the price
we will charge for designing, implementing and maintaining such wireless
communication networks may decline over time as new competitors enter the
market.
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<PAGE>
INTELLECTUAL PROPERTY
We rely on a combination of trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with our employees,
customers and business partners to protect our proprietary rights in our
products, services, know-how and information. We currently hold three patents,
Patent Nos. 4,857,714, 4,883,948 and 4,939,352, filed under the name "Credit
Card Storage System," all of which protect the use of our credit card
technology. These patents have not been highly utilized in the lodging industry,
but we believe they are important to our future product offerings in the
healthcare and time-share industries. In addition, we recently filed a patent
application relating to certain components and functions of our products.
We do not know if our patent application or any future patent
application will be issued with the full scope of claims we seek, if at all, or
whether any patents we receive will be challenged or invalidated. Our means of
protecting our proprietary rights in the United States or abroad may not be
adequate and competitors may independently develop similar technology. We cannot
be certain that our services do not infringe on patents or other intellectual
property rights that may relate to our services. Like other technology-based
businesses, we face the risk that we will be unable to protect our intellectual
property and other proprietary rights, and the risk that we will be found to
have infringed on the proprietary rights of others.
RESEARCH AND DEVELOPMENT
We currently have two software developers and one hardware engineer on
our staff. Our research and development department focuses on upgrading our
proprietary software and hardware that make up our eRoom System. As we expand
our business, we will need to increase the size of our research and development
department in order to integrate additional services into our eRoom System and
modify our eRoom System as needed to serve other markets.
PROPERTY AND EMPLOYEES
We maintain an office at 3770 Howard Hughes Parkway, Suite 175, Las
Vegas, Nevada. We lease office space at the rate of $1,590 per month. The
office lease commenced on October 15, 1997 and expires on September 15, 2000.
We also have offices and a research and development and assembly facility
located at 390 North 3050 East, St. George, Utah. This lease commenced on
November 1, 1997 and expires on October 31, 2002. The monthly lease rate is
$9,000.
We currently employ thirty-four full-time and three part-time employees
in our St. George, Utah facility and two full-time employees in our Las Vegas
office. We anticipate the largest growth in employees will occur in the area of
field operations. None of our employees is subject to a collective bargaining
agreement.
Assembly of our products takes place at our St. George, Utah facility.
We currently have nine employees engaged in product assembly. As the demand for
our products increases, we intend to establish a turn-key manufacturing source
for the majority of our production and assembly requirements. Currently, our
in-house staff installs our products at our customers' properties. Our in-house
staff, which currently consists of six employees, also performs physical
maintenance of our products under our maintenance agreements. Eventually, we
will outsource a portion of the installation and maintenance of our products.
LEGAL PROCEEDINGS
We are from time to time parties to various legal proceedings arising
out of our business. Apart from the foregoing, we believe that there are no
proceedings pending or threatened against us which, if determined adversely,
would have a material adverse effect on our business, financial condition,
results of operations or liquidity.
Royal W. Minson II, our former President and Chief Operating Officer,
filed for protection in the United States Bankruptcy Court for the Northern
District of California, Case No. 99-47533-TD-7, under Chapter 7 of the United
States Bankruptcy Code on September 27, 1999, one day before the 1999 Reverse
Stock Split. Mr. Minson's bankruptcy schedules list, as an asset, 325,000 shares
of common stock, or the Minson Shares, and, as a liability,
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<PAGE>
$568,750 in the form of a demand promissory note in favor of us. After the
1999 Reverse Stock Split and the 2000 Reverse Stock Split, the Minson Shares
represent 121,875 shares of common stock. Mr. Minson received such shares
upon the exercise of options in December 1997 and executed a demand
promissory note to pay for the exercise of the option. On January 5, 2000,
the presiding Bankruptcy Court judge entered a discharge order. We have filed
a proof of claim for the demand promissory note executed by Mr. Minson, plus
accrued interest thereon. In addition, our proof of claim sets forth offsets
to Mr. Minson's asset claim of $130,000 of unpaid salary owed to him by us.
Since the demand promissory note executed by Mr. Minson, without accrued
interest, comprises more than 80% of the liabilities of the Minson estate, we
hope to obtain the Minson Shares through the bankruptcy court process. If we
are unable, we plan to petition the bankruptcy trustee to purchase the Minson
Shares, effectively buying all of the liabilities of the Minson estate and
the administrative fees associated with the matter.
On March 2, 1999, Willow Creek Systems, Inc. brought an action against
us that is currently pending in Salt Lake County Third District Court, State of
Utah, Civil No. 99-0902417. By this action, Willow Creek alleges breach of
contract and seeks payment in the amount of approximately $125,000 from us for
materials delivered pursuant to certain purchase orders. In our Answer to Willow
Creek's Amended Complaint and our Responses to Willow Creek's First Set of
Interrogatories, Requests for Admissions and Request for Production of
Documents, we allege that the materials delivered by Willow Creek were
defective, lacked quality control and were below acceptable standards in the
industry. In addition, we allege that the costs of repairing and replacing the
defective materials, the costs during down time for such repair and replacement
and other related costs are in excess of $120,000. Although we believe that our
documentation on this matter is sufficient to support our claims, we are unable
at this time to predict the exact outcome of the matter. The case is in the
final stages of discovery. Willow Creek is no longer an operating entity.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our current directors, executive officers and director designees are as
follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Steven L. Sunyich 46 President, Chief Executive Officer and Chairman of the Board of Directors
Derek K. Ellis 31 Chief Financial Officer and Treasurer
Stephen M. Nelson 51 Chief Operating Officer
Ronald C. Johnson 50 Executive Vice President of Sales and Marketing
Gregory L. Hrncir 33 General Counsel and Secretary
Lawrence S. Schroeder 51 Director
Dr. Alan C. Ashton 58 Director Designee
S. Leslie Flegel 61 Director Designee
</TABLE>
Upon the completion of this offering, our Board will consist of four
members, each of whom will serve in that capacity for a one-year term or until a
successor has been elected and qualified, subject to earlier resignation,
removal or death. The number of directors comprising our Board may be increased
or decreased by resolution adopted by the affirmative vote of a majority of the
Board. Messrs. Ashton and Flegel have agreed to join the Board at the first
meeting of the Board following completion of this offering. We presently expect
that Messrs. Ashton and Flegel will be appointed to the Compensation and Audit
Committees upon joining the Board.
Each of the executive officers is a full-time employee of eRoom.
Non-employee directors of eRoom devote such time to the affairs of eRoom as is
necessary and appropriate. Set forth below are descriptions of the backgrounds
of the executive officers, directors, director designees and key employees of
eRoom:
STEVEN L. SUNYICH has served as our President, Chief Executive Officer
and Chairman of the Board of Directors since our inception. Mr. Sunyich also
serves as President and Chief Executive Officer of RoomSystems and RSi BRE.
Since 1983, Mr. Sunyich has been involved with the credit card and lodging
industries as a developer, inventor and engineer of high-tech products. Mr.
Sunyich developed and patented eRoom's automated credit card draft capture
technology. It was the advent of this technology that permitted direct purchases
using a credit card from devices such as gas pumps, pay telephones and fast food
restaurants.
DEREK K. ELLIS has served as our Chief Financial Officer and
Treasurer since 1997. Mr. Ellis also serves as Chief Financial Officer and
Treasurer of RoomSystems and as Chief Financial Officer, Treasurer and as a
Director of RSi BRE. From 1995 to 1997, Mr. Ellis served as the Director of
Finance for IVY International Communications, Inc., Provo, Utah, formerly a
division of Novell/Word Perfect (Nasdaq NM: NOVL). As the Director of Finance
for IVY, Mr. Ellis oversaw all accounting, budgeting and strategic planning
for this international $25 million company. Mr. Ellis also directed the daily
operations of many of IVY's international offices as well as integration of
the accounting and reporting of all offices. Mr. Ellis received his Bachelor
of Science in Finance from the University of Utah.
STEPHEN M. NELSON has served as our Chief Operating Officer since
March 2000. Prior to joining us, Mr. Nelson spent nine years with TELS
Corporation where he served as its President and Chief Operating Officer from
1996 to 1999, its Executive Vice President from 1994 to 1996, and its Chief
Financial Officer from 1990 to 1994. Mr. Nelson also served as a member of
its board of directors from 1991 to 2000. TELS Corporation designs,
manufactures and markets telephone call management hardware and software
products for the hospitality industry. Mr. Nelson assisted in TELS' initial
public offering and subsequent capital raising and oversaw TELS' operations
and finances. He received his Bachelor of Science in Accounting from the
University of Utah in 1974. Mr. Nelson is a certified public accountant and a
member of the AICPA, UACPA, Institute of Management Accountants and American
Management Association.
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<PAGE>
RONALD C. JOHNSON has served as our Executive Vice President of Sales
and Marketing since 1998. From 1997 to 1998, Mr. Johnson served as Vice
President of Choose the Right Stuff, a Salt Lake City, Utah marketing company.
From 1996 to 1997, Mr. Johnson served as National Sales Manager for Franklin
Quest Institute of Fitness, St. George, Utah, where he was responsible for
creating a variety of marketing support materials, training and motivating a
sales force, and creating and managing business plans and marketing initiatives.
From 1989 to 1996, Mr. Johnson served as an account executive for Franklin Quest
(currently known as Franklin Covey), Salt Lake City, Utah, and was responsible
for managing a five state territory and providing training and marketing
initiatives. Mr. Johnson received his Bachelor of Science in Biology from Texas
Wesleyan College in 1972 and attended the MBA program at the University of Utah.
GREGORY L. HRNCIR has served as our General Counsel and Secretary since
October 1999. Mr. Hrncir also serves as Secretary of RoomSystems and RSi BRE. In
1999, Mr. Hrncir served as General Counsel for PayStation America, Inc., Los
Angeles, California, an e-commerce company with a proprietary automated bill
payment technology. While at PayStation, Mr. Hrncir managed all aspects of the
company's legal affairs, including its $75 million staged venture capital
financing. From 1994 to 1998, Mr. Hrncir specialized in corporate and securities
matters with the law firms of Knapp, Petersen & Clarke and Rosen & Gyemant in
Los Angeles, California, and represented us from 1996 to 1998. Mr. Hrncir
received his Bachelor of Science from Arizona State University and his Juris
Doctor from Whittier College School of Law. He is a member of the Arizona and
California State bars.
LAWRENCE S. SCHROEDER has served as a Director since October 1998. Mr.
Schroeder has also served as a Director of RoomSystems since 1998. Mr. Schroeder
has over twenty years of experience in the hospitality, food and beverage
industries. Since 1992, Mr. Schroeder has been a private consultant to the
hospitality, sports and other related industries. His current clients include
the National Football League, NASCAR, National Hockey League and Major League
Baseball. Mr. Schroeder is also a Director of River Valley Productions, Kansas
City, Missouri, and a Director of Responsive Marketing & Communications,
Chicago, Illinois. River Valley Productions is an entertainment production
company sponsored by Anheuser Busch and Coca-Cola and the official tailgate
party sponsor for the Super Bowl. Responsive Marketing & Communications is a
marketing agency whose clients have included the 1996 Olympic Games, Boboli
Pizza, Helmann's Mayonnaise and Eveready Batteries. Mr. Schroeder received his
Bachelor of Science in Business Administration from Huron College.
S. LESLIE FLEGEL has agreed to serve as a Director following completion
of this offering. Mr. Flegel has been the Chairman of the Board of Directors and
Chief Executive Officer of The Source Information Management Company (Nasdaq NM:
SORC), St. Louis, Missouri, since its inception in March 1995. For more than 14
years prior thereto, Mr. Flegel was the principal owner and Chief Executive
Officer of Display Information Systems Company, a predecessor of The Source. Mr.
Flegel received his Bachelor of Arts from the University of Missouri-Columbia.
DR. ALAN C. ASHTON has agreed to serve as a Director following
completion of this offering. Dr. Ashton is the co-founder of WordPerfect
Corporation, Orem, Utah, one of the best-selling word processing software
companies worldwide. Dr. Ashton received a Bachelor's Degree in Mathematics and
a Ph.D. in Computer Science from the University of Utah. Dr. Ashton is a former
professor of Computer Science at the University of Utah and Brigham Young
University. Dr. Ashton has served on the board of directors of Novell, Inc.,
Geneva Steel and Utah Valley State College.
OTHER KEY EMPLOYEES
RONALD C. WARD has served as our Vice President of Research and
Development since our inception, overseeing the hardware and circuitry design
and development of our products. Mr. Ward has spent the last 35 years in analog
and digital circuitry design. From 1991 to 1995, Mr. Ward served as Senior Staff
Engineer with Dynatec Video Group, devising systems for analog switcher and
video switchers. Mr. Ward has developed over 40 products in the analog and
digital industry and currently holds three patents.
DOUGLAS SEASTRAND has served as our Vice President of Software
Development since October 1999. Prior to joining us, Mr. Seastrand was an
Engineering Specialist with Bechtel Nevada, Las Vegas, Nevada. At Bechtel,
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<PAGE>
Mr. Seastrand worked on government projects involving classified embedded
hardware and software. From 1997 to 1999, Mr. Seastrand served as lead
technical engineer for EG&G/Special Projects, Las Vegas, Nevada, where he
researched, approved, integrated and implemented all uses of hardware and
software technologies for this company's diverse product base. Mr. Seastrand
received his Bachelor of Science in Computer Science from the University of
Nevada at Las Vegas and is currently a University Regent of the University
and Community College System of Nevada.
SHAWN S. SUNYICH has served as our Vice President of Field Operations
since 1992. Mr. Sunyich is experienced in the design and implementation of our
products and is responsible for the installation and maintenance of our products
at each property, as well as support and data management. Mr. Sunyich received
his Associates Degree in Computer Science from Certified Careers Institute. Mr.
Sunyich is the son of Steven L. Sunyich.
STEVEN A. MOULTON has served as our Vice President of Manufacturing
since 1994. Mr. Moulton has managed all manufacturing sources. Previously, Mr.
Moulton worked with Rogers Corporation and ComTel, Inc. overseeing product
development and manufacturing. Mr. Moulton received a Bachelor of Arts from
Weber State College and a Master of Business Administration from Brigham Young
University.
DOUGLAS SCOLLIN has served as our Vice President of Corporate Accounts
since October 1999. Over the past 28 years, Mr. Scollin has served in the
lodging industry dealing with high-technology products, such as electronic
security, property management systems, worldwide reservations software, room
safes and other products. Mr. Scollin was IBM's first hotel marketing
specialist. Mr. Scollin is a founder and former president of Lodgstix, Wichita,
Kansas, a leading vendor of hotel property management systems. Mr. Scollin
received his Bachelor of Science in Business Administration from the University
of Florida.
FRANK HICKS has served as our General Manager since 1996. Previously,
Mr. Hicks spent 17 years with Evans & Sutherland as a contracts negotiator and
financial administrator. Mr. Hicks received a Bachelor of Arts degree from the
Ohio Christian College, a Masters in Business Administration from Florida State
Christian College and a Juris Doctor from the Blackstone School of Law.
COMPOSITION OF OUR BOARD
Our Bylaws authorize not less than two and no more than nine directors.
Directors hold office for a term of one year. Executive officers are elected by
and serve at the discretion of our Board.
COMMITTEES OF OUR BOARD
The Board has approved an Audit Committee and a Compensation Committee
to be formed upon the completion of this offering. The Audit Committee will have
the responsibility of recommending the firm that will serve as our independent
public accountants, reviewing the scope and results of the audit and services
provided by our independent public accountants and meeting with our financial
staff to review accounting procedures and policies. The Compensation Committee
will have the responsibility of reviewing our financial records to determine
overall compensation and benefits for executive officers and to establish and
administer the policies which govern employee salaries and benefit plans.
DIRECTOR COMPENSATION
Non-employee directors of eRoom will receive an attendance fee of $500
per meeting attended. In addition, non-employee directors of eRoom will receive
stock options pursuant to the 2000 Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the completion of this offering, compensation of executive
officers was established by Steven L. Sunyich, Chief Executive Officer,
President and Chairman of the Board. Following this offering, compensation of
executive officers will be established by the Board pursuant to recommendations
from the Board's Compensation Committee. No member of our Compensation Committee
will serve as a member of a board of directors or
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<PAGE>
compensation committee of any entity that has one or more executive officers
serving as a member of our Board or Compensation Committee.
There are no family relationships among any of our directors, executive
officers or key employees other than between Steven L. Sunyich and Shawn S.
Sunyich, who are father and son.
STOCK OPTION PLAN
The 2000 Stock Option and Incentive Plan, or the 2000 Option Plan, was
adopted by the Board on February 3, 2000 and was approved by the stockholders on
March 29, 2000. The plan became effective on February 3, 2000. The plan provides
us with the vehicle to grant to employees, officers, directors and consultants'
stock options and bonuses in the form of stock and options. Under the plan, we
can grant awards for the purchase of up to two million shares of common stock in
the aggregate, including "incentive stock options" within the meaning of Section
422 of the United States Internal Revenue Code of 1986, as amended, and
non-qualified stock options. To date, we have issued options to purchase
1,427,250 shares of common stock under the 2000 Stock Option Plan. The
Compensation Committee of our Board has authority to determine the persons to
whom awards will be granted, the nature of the awards, the number of shares to
be covered by each grant, the terms of the grant and with respect to options,
whether the options granted are intended to be incentive stock options, the
duration and rate of exercise of each option, the option price per share, the
manner of exercise and the time, manner and form of payment upon exercise of an
option.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth certain summary information concerning
the total remuneration paid or accrued by eRoom, to or on behalf of our Chief
Executive Officer whose total salary, bonus and other compensation exceeded
$100,000 during the fiscal year ended December 31, 1999. In accordance with the
rules of the Securities and Exchange Commission, or the Commission, the
compensation described in this table does not include perquisites and other
personal benefits received by the executive officer named in the table below
which does not exceed the lesser of $50,000 or 10% of the total salary and bonus
reported for this executive officer.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Steven L. Sunyich, 1999 $156,058 -- --
President, Chief Executive 1998 $73,308 -- $4,000
Officer and Chairman 1997 $28,517 -- $49,000
</TABLE>
The amounts paid to Mr. Sunyich other than salary were pursuant to a consulting
agreement. Pursuant to this consulting agreement, Mr. Sunyich received $49,000
in 1997 and $4,000 in 1998.
OPTION GRANTS TO OFFICERS DURING THE YEAR ENDED DECEMBER 31, 1999 AND
SUBSEQUENT TO DECEMBER 31, 1999
We did not grant any options to our executive officers during the
fiscal year ended December 31, 1999. Subsequently, we granted to Mr. Sunyich
options to purchase 158,750 shares of common stock at $4.00 per share, 61,125
shares of common stock at $8.80 and 116,800 shares of common stock at $9.60 per
share. We have also granted to our other officers an aggregate of options to
purchase 160,000 shares of common stock at $4.00, 25,000 shares of common stock
at $6.00, 95,875 shares of common stock at $8.80 and 99,202 shares of common
stock at $9.60 per share. The exercise price for all of the options may, in some
cases, be paid by delivery of other shares. The deemed fair value for the date
of grant has been adjusted solely for financial accounting purposes.
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<PAGE>
EMPLOYMENT AGREEMENTS
On January 1, 1999, we entered into an Executive Employment Agreement
with Steven L. Sunyich that will expire on December 31, 2001 and is subject to
annual review and/or adjustment. Under this employment agreement, Mr. Sunyich is
to serve as our Chairman of the Board and Chief Executive Officer at an annual
base salary of $155,000. Upon the successful completion of our initial public
offering, Mr. Sunyich would be entitled to an increase in annual salary of
$30,000. In the event the employment of Mr. Sunyich is terminated for reasons
other than for cause, permanent disability or death, Mr. Sunyich would be
entitled to cash compensation equal to his base salary for the period remaining
under his employment agreement, or one year, whichever is greater. Pursuant to
this employment agreement, Mr. Sunyich has agreed not to disclose confidential
information regarding our technology and business operations, and further has
agreed not to compete with us during the term of his employment and for a period
of one year thereafter.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Sections 78.7502 and 78.751 of the Nevada Revised Statutes provide for
the indemnification of officers, directors and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Article XII of our articles of incorporation provides for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by Sections 78.7502 and 78.751 of
the Nevada Revised Statutes. We maintain directors and officers liability
insurance on behalf of our officers and directors insuring them against
liability that they may incur in such capacities or arising out of such status.
In addition to the indemnification of officers and directors under the
Nevada Revised Statutes, we entered into an Indemnification Agreement on August
17, 1999 with Dr. Alan C. Ashton, a director designee. Pursuant to this
indemnification agreement, we agreed to hold harmless and indemnify Dr. Ashton
against any and all expenses incurred by him as a result of his position as a
director of eRoom. In addition, we agreed to advance expenses incurred by Dr.
Ashton upon receipt of a written request for such advancement containing an
unsecured undertaking by Dr. Ashton to repay such amounts to the extent that Dr.
Ashton is held to not be entitled to indemnification from eRoom. The advancement
of expenses specifically excludes amounts for judgments, penalties, fines and
settlements. Dr. Ashton possesses the right to indemnification if, in civil
proceedings, he acted in good faith and in a manner that he reasonably believed
to be in or not opposed to the best interests of eRoom, and, in criminal
proceedings, he had no reasonable cause to believe that his conduct was
unlawful. In addition, eRoom may elect to not indemnify Dr. Ashton if either a
majority of the directors not involved in the relevant proceeding or independent
legal counsel, in a written opinion, determine that Ashton has not met the
relevant standards for indemnification.
On September 28, 1999, we entered into an indemnification agreement
with Donnelly Prehn which indemnifies Mr. Prehn for actions which may be taken
by him as a director on behalf of RSi BRE. Pursuant to this indemnification
agreement, eRoom and RSi BRE, jointly and severally, agreed to hold harmless and
indemnify Mr. Prehn against any and all expenses incurred by him as a result of
his position as a director of RSi BRE. In addition, we agreed to advance
expenses incurred by Mr. Prehn upon receipt of a written request for such
advancement containing an unsecured undertaking by Mr. Prehn to repay such
amounts to the extent that Mr. Prehn is held not to be entitled to
indemnification from eRoom. Mr. Prehn's rights to indemnification are only
available if damages have not already been paid directly to Mr. Prehn by an
insurance carrier maintained by either eRoom or RSi BRE. Mr. Prehn is not
entitled to indemnification if he is adjudged by a court of competent
jurisdiction to have engaged in intentional misconduct or a knowing violation of
the law, if he received an improper personal benefit, or if a court of competent
jurisdiction renders a final decision that such indemnification is unlawful.
There is no pending litigation or proceeding involving any of our
directors or officers as to which indemnification is being sought, nor are we
aware of any pending or threatened litigation that may result in claims for
indemnification by any director of officer.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS INVOLVING ASH CAPITAL
On August 17, 1999, eRoom and Ash Capital entered into an Agreement of
Understanding with respect to the purchase by Ash Capital of 333,334 shares of
Series B convertible preferred stock at a price of $3.00 per share. This
agreement provides Ash Capital with representation on our Board and options to
purchase 70,313 shares of common stock at $4.80 per share and 56,250 shares of
common stock at $8.80 per share. The Agreement of Understanding was later
amended by an agreement which provided additional obligations of eRoom with
respect to the purchase of an aggregate of 683,336 shares of Series B
convertible preferred stock as follows: Ash Capital - 333,334 shares (as
set forth above); C&W/RSI Partners - 133,334 shares; SKM Investments, LLC -
133,334 shares; and Thunder Mountain Properties LC - 83,334 shares. Pursuant to
this amendment, eRoom agreed to, among other things, deliver monthly and annual
financial statements, make adjustments for certain business combinations and
capital-related transactions, and issue additional shares of preferred stock to
the extent that eRoom sells shares of common stock, or its equivalents, for less
than $3.00 per share. In addition, the shares of Series B convertible preferred
stock purchased by these investors possess the same rights as other shares of
Series B convertible preferred stock.
On February 15, 2000, we received a $500,000 loan from Ash Capital. Dr.
Alan C. Ashton is a director designee of eRoom and owns 100% of Ash Capital.
This loan is evidenced by a promissory note bearing simple interest at the rate
of 10% per annum, payable on May 31, 2000 and secured by our assets. Ash Capital
was issued a warrant to purchase 18,750 shares of common stock exercisable at
$4.80 per share through the second anniversary date of the close of this
offering. The primary purpose of this loan was to fund approximately 900
Refreshment Centers to be installed in up to six properties in the United
States. The Ash Capital loan will be repaid from the sale of these Refreshment
Centers or from the net proceeds of this offering.
TRANSACTIONS INVOLVING RSG INVESTMENTS
On July 17, 1998, eRoom entered into an agreement with RSG
Investments through which RSG Investments loaned us $1.5 million. The purpose
of the loan was to fund the production of approximately 2,270 Refreshment
Centers. As an inducement, we issued the principals of RSG Investments
warrants to purchase 46,875 shares of common stock and agreed to pay interest
at the rate of 15% per annum. Our obligation was secured by Refreshment
Centers, our other assets and shares of common stock held by the officers,
directors and certain consultants. Under this agreement, we were to
"repurchase" the Refreshment Centers within 75 days, or by September 30,
1998. If we failed to "repurchase" the Refreshment Centers by such date,
warrants to purchase 9,375 shares of common stock would accrue every 30 days
through January 30, 1999. We failed to "repurchase" the Refreshment Centers
by September 30, 1998 and remained in default through January 30, 1999,
although we obtained several extensions from RSG Investments. As our
obligation remained unsatisfied, we entered into a settlement with RSG
Investments in the form of an Equipment Transfer Agreement dated September
28, 1999.
Pursuant to the Equipment Transfer Agreement, we formed RSi BRE,
transferred ownership of 2,270 Refreshment Centers to RSi BRE, and granted
RSG Investments the right to receive $0.57 per Refreshment Center per day of
the revenue realized from the 2,270 Refreshment Centers. As part of the
settlement, the RSi BRE Board was to consist of three individuals, a
representative of eRoom, a representative of RSG Investments and a third
independent director. In addition, we paid $250,000 to RSG Investments,
converted $500,000 of our obligation into 166,667 shares of Series B
convertible preferred stock and executed a promissory note in the principal
amount of $750,000. We are obligated to satisfy this promissory note in full
no later than the earlier of December 31, 2000 or 30 days after the closing
of an initial public offering, if such offering is closed prior to November
30, 2000. Pursuant to this settlement, RSG Investments terminated the
security interest granted under the original obligation and received a
security interest in all of the assets of RSi BRE. In addition, RSG
Investments surrendered all warrants to purchase shares of common stock eRoom
previously issued to it. We have met all the obligations under our settlement
with RSG Investments with the exception of the repayment of the $750,000 to
RSG Investments.
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<PAGE>
OTHER TRANSACTIONS WITH RELATED PARTIES
In October 1996, in consideration for the sale of certain patents to
eRoom, we agreed to pay $125,000 and issue 65,625 shares of common stock to
Steven L. Sunyich. In fiscal year 1999, Mr. Sunyich converted the remaining
principal balance of $70,750 into 23,583 shares of Series B convertible
preferred stock.
During fiscal year 1997, Kelley Family Trust and Toleman Family
Trust, both of which are controlled by Steven L. Sunyich, our Chief Executive
Officer and Chairman, purchased 84,375 and 118,125 shares of common stock,
respectively, at a price of $4.67 per share, evidenced by demand promissory
notes bearing simple interest at the rate of 7% per annum. In addition, in
fiscal year 1997, Derek K. Ellis, our Chief Financial Officer, purchased
120,375 shares of common stock at a price of $4.67 per share, evidenced by a
demand promissory note bearing simple interest at the rate of 7% per annum.
Further, in fiscal year 1997, Gregory L. Hrncir, our General Counsel and
Secretary, purchased 50,625 shares of common stock through DM Trust at a
price of $4.67 per share, evidenced by a demand promissory note bearing
simple interest at the rate of 7% per annum. In October 1999, the Board
called the demand promissory notes of Messrs. Sunyich, Ellis and Hrncir. The
demand promissory notes were defaulted upon and the related shares of common
stock were retired. Although these demand promissory notes were called in
October 1999, the demand promissory note of Tryon Marrietta, LLC, an entity
controlled by a former consultant to the Company, was not formally called
until February 10, 2000. On March 11, 2000, the 140,625 shares issued in the
name of Tryon Marrietta, LLC were returned to treasury and thereafter retired.
Steven L. Sunyich, our President, Chief Executive Officer and
Chairman of the Board, loaned the sum of $205,209 to us, as evidenced by a
promissory note dated January 1, 1999. Derek Ellis, our Chief Financial
Officer, loaned $10,545 to us. In addition, an individual who is now a former
executive officer and consultant, or the former consultant, loaned the sum of
$83,411 to us on January 1, 1999. On September 1, 1999, we entered into
agreements whereby we agreed to convert the outstanding indebtedness due on
these promissory notes. As a result, we issued 72,434 shares of Series B
convertible preferred stock and 51,979 shares of our common stock to Mr.
Sunyich, 3,742 shares of Series B convertible preferred stock and 2,990
shares of our common stock to Mr. Ellis, and 29,808 shares of Series B
convertible preferred stock and 25,374 shares of our common stock to the
former consultant. The funds loaned to us were originally loaned to Mr.
Sunyich and the former consultant by a family partnership owned and
controlled by the former consultant. Upon inquiry, we were advised that the
loans by the family partnership to Mr. Sunyich and the former consultant had
been obtained from the proceeds of what may have been an unregistered
offering of our common stock by the family partnership and the former
consultant. Through this offering, the family partnership and the former
consultant sold shares of our common stock held by certain third parties.
Although we were previously obligated to repurchase these shares from these
third parties, we were not able to raise sufficient funds to consummate the
transaction. To our knowledge, from April 1998 through March 1999, the family
partnership sold approximately 112,500 shares of eRoom common stock to
approximately 36 investors in exchange for approximately $1.3 million.
Further, in December 1999, the family partnership notified eRoom of its
intention to transfer to these investors approximately 60,000 additional
shares of eRoom common stock held by the family partnership to offset the
effect of the 1999 Reverse Stock Split. We have not been able to determine
whether this unregistered offering was conducted by the family partnership
and the former consultant with the benefit of a state or federal exemption
from registration. As a result, the family partnership and the former
consultant may be subject to an examination by certain administrative
agencies with respect to its offers and sales of eRoom common stock or may be
subject to demand for rescission by the purchasers of eRoom common stock.
Despite the possible exposure of the family partnership and the former
consultant to liability, eRoom did not have any control over the family
partnership or the former consultant and we did not participate in the actual
offer and sale of eRoom common stock to these purchasers.
On May 30, 1999, the SBD Limited Partnership, an entity controlled
by Mr. Sunyich, executed a promissory note in favor of eRoom in the original
principal amount of $1,590,000 in consideration for the issuance of 198,750
shares of our common stock. The purpose of the issuance was to assist eRoom
in complying with certain stock pledge requirements mandated by the terms of
the $1,500,000 loan from RSG Investments. On September 30, 1999, as a result
of a settlement agreement with RSG Investments, the 198,750 shares of common
stock were returned to the SBD Limited Partnership. Immediately thereafter,
the SBD Limited Partnership surrendered the 198,750 shares of common stock to
eRoom in exchange for the cancellation of the promissory note. The shares of
common stock were booked as treasury stock and have been retired.
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On December 7, 1999 and February 14, 2000, Mr. Sunyich formally
assigned to eRoom Patent No. 4,939,352 and Patent Nos. 4,857,714 and
4,883,948, respectively. These patents relate to credit card point of sale
technology. Each of the patent assignments have been filed with the United
States Patent and Trademark Office. The assignments finalized the sale of
such patents by Mr. Sunyich to us.
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our
common stock as of April 13, 2000 and as adjusted to reflect the sale of the
shares of common stock in this offering by:
- each person or entity known by us to own beneficially more
than five percent of our common stock;
- our chief executive officer, our directors and our director
designees, individually; and
- all of our executive officers, directors and director
designees, as a group.
The beneficial ownership is calculated based on 2,317,247 shares of
our common stock outstanding as of April 13, 2000 and 6,203,172 shares
outstanding immediately following the completion of this offering. The shares
of common stock outstanding immediately following the completion of this
offering reflect the 1,800,000 shares of common stock to be sold, the
issuance of 200,000 shares of common stock in relation to the Bridge Loan,
and 400,000, 1,541,985 and 143,940 shares of common stock as a result of the
conversion of Series A, Series B and Series C convertible preferred stock,
respectively, upon the completion of this offering. The conversion of
preferred stock into common stock was calculated upon the assumption that the
initial public offering price will be $9.00 per share.
Beneficial ownership is determined in accordance with the rules of
the Commission and generally includes voting or investment power with respect
to securities. Below, the column titled "Number of Shares Beneficially Owned"
includes all shares listed in the column titled "Shares Issuable Upon
Exercise of Stock Options or Warrants." Unless otherwise indicated, each
person or entity named in the table has sole voting power and investment
power, or shares voting and investment power with his or her spouse, with
respect to all shares of capital stock listed as owned by such person. Shares
issuable upon the exercise of options that are currently exercisable or
become exercisable within sixty days of April 13, 2000 are considered
outstanding for the purpose of calculating the percentage of outstanding
shares of our common stock held by the individual, but not for the purpose of
calculating the percentage of outstanding shares of our common stock held by
another individual. Unless otherwise indicated, the address of the following
stockholders is c/o eRoom System Technologies, Inc., 3770 Howard Hughes
Parkway, Suite 175, Las Vegas, Nevada 89109.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NUMBER OF SHARES ISSUABLE BENEFICIALLY OWNED
SHARES UPON EXERCISE OF ------------------
NAME OF EXECUTIVE OFFICER, BENEFICIALLY STOCK OPTIONS OR PRIOR TO THE AFTER THE
DIRECTOR AND DIRECTOR DESIGNEES OWNED WARRANTS OFFERING OFFERING
- ------------------------------- ----- -------- -------- --------
<S> <C> <C> <C> <C>
Steven L. Sunyich(1) 779,835 344,025 25.3% 11.9%
Lawrence S. Schroeder(2) 45,000 45,000 1.9% 0.7%
Dr. Alan C. Ashton(3) 392,227 145,313 5.9% 6.2%
S. Leslie Flegel(4) 122,576 115,000 4.7% 1.9%
All of our executive officers, directors and
director designees as a group (8 persons) 1,741,370 1,040,564 49.3% 27.1%
GREATER THAN FIVE PERCENT STOCKHOLDER
- -------------------------------------
Pacific Acquisition Group II, LLC
23501 Park Sorrento, Suite 213-B 149,333 0 6.4% 2.4%
Calabasas, California 91302
</TABLE>
- ---------------
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<PAGE>
(1) Reflects beneficial ownership of 57,500 shares of common stock,
270,563 shares of common stock as trustee of certain entities, 107,747 shares
of common stock as a result of the conversion of Series B convertible
preferred stock upon the completion of this offering, and options to purchase
an aggregate of 344,025 shares of common stock. The options held by Mr. Sunyich
are immediately exercisable.
(2) Reflects beneficial ownership of an option to purchase 45,000
shares of common stock. The option held by Mr. Schroeder is immediately
exercisable.
(3) Dr. Ashton has agreed to serve as a director upon the completion
of the offering. Ash Capital, controlled by Dr. Ashton, beneficially owns
options to purchase 145,313 shares of common stock and 246,914 shares of
common stock as a result of the conversion of Series B convertible preferred
stock upon the completion of this offering. The options held by Ash Capital
are immediately exercisable.
(4) Mr. Flegel has agreed to serve as a director upon the completion
of the offering. Mr. Flegel's beneficial ownership consists of options to
purchase 112,500 shares of common stock, a warrant to purchase 2,500 shares
of common stock and 7,576 shares of common stock as a result of the
conversion of Series C convertible preferred stock upon the completion of
this offering. The options and warrant held by Mr. Flegel is immediately
exercisable.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
eRoom's authorized capital stock consists of 50,000,000 shares of
common stock, $0.001 par value; 5,000,000 shares of preferred stock,$0.001
par value; 500,000 shares of Series A convertible preferred stock, $0.001 par
value; 2,500,000 shares of Series B convertible preferred stock, $0.001 par
value; and 2,000,000 shares of Series C convertible preferred stock, $0.001
par value. As of April 13, 2000, and after giving effect to the 1999 and 2000
Reverse Stock Splits for certain classes of stock as set forth below, there
were 2,317,247 shares of common stock, 360,000 shares of Series A convertible
preferred stock, 2,081,680 shares of Series B convertible preferred stock and
219,227 shares of Series C convertible preferred stock. As set forth below,
there are outstanding options and warrants to purchase 2,502,815 shares of
common stock. We have reserved 2,000,000 shares of common stock for issuance
pursuant to our 2000 Option Plan.
COMMON STOCK
As of April 13, 2000, our outstanding shares of common stock were
held by approximately 400 stockholders. Holders of common stock are entitled
to one vote per share on all matters submitted to a vote of the shareholders.
We do not allow cumulative voting of any kind, and are not required to do so
under Nevada law. Subject to preferences that may be applicable to any then
outstanding preferred stock, the holders of common stock will be entitled to
receive dividends, if any, as may be declared from time to time by the Board
out of legally available funds. Upon liquidation, dissolution, or winding up
of eRoom, the holders of common stock will be entitled to a pro rata share of
our assets that are legally available for distribution after payment of all
debts and other liabilities and subject to the prior rights of any preferred
stock then outstanding. Holders of our common stock have no preemptive,
subscription, redemption, or conversion rights.
PREFERRED STOCK
We are authorized to issue 5,000,000 shares of undesignated
preferred stock. None of the undesignated preferred stock is issued or
outstanding, and we have no present plans to issue shares of undesignated
preferred stock. Our Board is empowered to issue one or more series of
undesignated preferred stock with such rights, preferences, restrictions and
privileges as may be fixed by our Board, without further action by our
stockholders. The issuance of the undesignated preferred stock could
adversely affect the rights, including voting rights, of the holders of our
common stock and could impede an attempted takeover of us.
SERIES A CONVERTIBLE PREFERRED STOCK
The rights of holders of common stock are subject to, and are
adversely affected by, the rights of holders of Series A convertible
preferred stock. We have 360,000 shares of Series A convertible preferred
stock issued and outstanding out of 500,000 shares authorized. Series A
convertible preferred stock is held by approximately 60 persons. Series A
convertible preferred stock is subject to the following rights and
preferences:
CONVERSION RIGHTS. Shares of Series A convertible preferred stock
automatically convert into eRoom common stock immediately following the close
of this offering. The Series A convertible preferred stock shall be converted
into common stock on a 1:1 basis, provided that the price per share of the
common stock in this offering is $10.00. If the price per share is less than
$10.00, the conversion rate shall be $10.00 divided by the actual price per
share.
DIVIDENDS. Holders of Series A convertible preferred stock are
cumulating an 8% annual dividend from November 14, 1998, payable quarterly in
arrears out of legally available funds, subject to our ability to pay such
dividends as limited by Nevada corporate law. To date, we have not paid
dividends to holders of Series A convertible preferred stock.
LIQUIDATION RIGHTS. In the event of a liquidation, dissolution or
winding up of eRoom, holders of Series A convertible preferred stock will be
entitled to receive, out of legally available assets, a liquidation
preference of $10.00 per share, plus an amount equal to any unpaid dividends
to the payment date, before any payment or
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<PAGE>
distribution is made to the holders of common stock or any series or class of
our stock hereafter issued that ranks junior as to liquidation rights of the
Series A convertible preferred stock.
VOTING RIGHTS. Holders of Series A convertible preferred stock may
not vote on any matter, excluding matters affecting the rights of such
shareholders or as required by law. In connection with any such vote, each
outstanding share of Series A convertible preferred stock will be entitled to
one vote.
SERIES B CONVERTIBLE PREFERRED STOCK
We have issued and outstanding 2,081,680 shares of Series B
convertible preferred stock out of 2,500,000 shares authorized. Series B
convertible preferred stock is held by approximately 100 persons. On April 12,
2000, the Series B convertible preferred stockholders approved an amendment
to the Series B Certificate designating the rights, preferences and
privileges thereof as follows:
CONVERSION RIGHTS. Series B convertible preferred stock is
automatically convertible upon the close of this offering into our common
stock, at 45% of the price per share in this offering. In the event we do not
close this offering by September 28, 2000, holders of Series B convertible
preferred stock shall have the option to convert each share of their Series B
convertible preferred stock into 1.5 shares of common stock. Series B
convertible preferred stock is subject to a "lock-up" restricting resale of
the underlying shares of common stock for a period of nine months following
closing of this offering.
DIVIDENDS. Holders of Series B convertible preferred stock are
entitled to an annual cumulative dividend of 6%, payable in the form of
common stock at the rate of $3.00 per share, and subject to our ability to
pay such dividends as limited by Nevada corporate law.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of eRoom, holders of Series B convertible preferred stock will be
entitled to receive, out of legally available assets, a liquidation
preference of $10.00 per share, plus an amount equal to any unpaid dividends
to the payment date, before any payment or distribution is made to the
holders of common stock or any series or class of the our stock hereafter
issued that ranks junior to the liquidation rights of Series B convertible
preferred stock.
VOTING RIGHTS. Holders of Series B convertible preferred stock may
not vote on any matter, excluding matters affecting the rights of such
shareholders or as required by law. In connection with any such vote, each
outstanding share of Series B convertible preferred stock will be entitled to
one vote. In addition, if we have not completed this offering by September 28,
2000, holders of Series B convertible preferred stock shall be accorded
voting rights. Each share of Series B convertible preferred stock shall be
entitled to one vote.
SERIES C CONVERTIBLE PREFERRED STOCK
We have issued and outstanding 219,227 shares of Series C
convertible preferred stock out of 2,000,000 shares authorized. Series C
convertible preferred stock is held by 13 persons. The shares of Series C
convertible preferred stock are subject to the following rights and
preferences:
CONVERSION RIGHTS. Series C convertible preferred stock shall
automatically convert into common stock upon the close of this offering at
55% of the price per share of the common stock offered hereunder, provided
this offering closes by January 31, 2001, otherwise at $3.30 per share.
LOCK-UP. Series C convertible preferred stock is subject to a
"lock-up" restricting the resale of the shares of common stock, issuable upon
conversion, for a period of one year following the close of this offering, or
for an additional period if mandated by Nasdaq.
DIVIDENDS. Series C convertible preferred stock includes a 7%
cumulative annual dividend, payable in cash, and is subject to our ability to
pay such dividends as limited by Nevada law and payable when declared by our
Board.
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<PAGE>
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of eRoom, holders of Series C convertible preferred stock will be
entitled to receive, out of legally available assets, a liquidation
preference of $10.00 per share, plus an amount equal to any unpaid dividends
to the payment date, before any payment or distribution is made to the
holders of common stock or any series or class of our capital stock hereafter
issued that ranks junior to the liquidation rights of the Series C
convertible preferred stock.
VOTING RIGHTS. Holders of Series C convertible preferred stock may
not vote on any matter, excluding matters affecting the rights of such
stockholders or as required by law. In connection with any such vote, each
outstanding share of Series C convertible preferred stock shall be entitled
to one vote.
OPTIONS AND WARRANTS
As of April 13, 2000, there are options and warrants outstanding to
purchase 2,502,815 shares of common stock at exercise prices ranging from
$1.33 to $16.00 per share with a weighted average exercise price per share of
$5.79. These options and warrants are exercisable at various times through
the third anniversary date of this offering.
REGISTRATION RIGHTS
In conjunction with the offering of Series B convertible preferred
stock, we granted to certain purchasers registration rights pursuant to that
certain Registration Rights Agreement dated September 30, 1999 in which we
granted to Ash Capital and certain other stockholders certain rights with
respect to our common stock, including registration rights and participation
rights. These stockholders may make a demand to have the shares of common
stock underlying their shares of Series B convertible preferred stock, or the
Registrable Shares, registered by eRoom or to participate in the registration
of shares of common stock by eRoom. The right to demand or participate in the
registration of shares of common stock is suspended if such registration is
prior to March 31, 2001, is prior to nine months following the last closing
of our initial public offering, or is after eRoom has effected two prior
registrations pursuant to the registration rights granted hereunder where
each registration has remained effective for at least 90 days. The costs
related to registration expenses, such as filing fees, legal expenses and
printing expenses, will be paid by eRoom and the costs related to selling
expenses, such as underwriting discounts, selling commissions and stock
transfer taxes, will be paid by the holders of Registrable Shares. In the
context of an underwritten offering, the holders of Registrable Shares
acknowledge that the managing underwriter may limit the number of shares to
be underwritten and require the pro rata reduction in the shares to be
registered. Further, the holders of Registrable Shares agree that such shares
will not be resold during a period beginning 15 days before the effective
date of the registration statement and continuing until the earlier of the
abandonment of the proposed public offering or 90 days after the last closing
in the public offering period.
In conjunction with our 1996 Notes Offering, we granted demand and
piggy-back registration rights for the shares of common stock underlying the
warrants granted. These registration rights apply to 242,550 shares of common
stock. We have not solicited or obtained waivers from the holders of these
registration rights with respect to our initial public offering.
Pursuant to our 1997 Units Offering, we granted certain registration
rights to the purchasers of units where such purchasers possessed the right
to demand registration and piggy-back registration for the shares of common
stock purchased. These registration rights apply to 372,375 shares of common
stock. We have not solicited or obtained waivers from the holders of these
registration rights with respect to our initial public offering.
Pursuant to our 1998 Common Stock Offering, we granted purchasers of
common stock the right to piggy-back the registration of their shares onto a
future registration statement of eRoom for a public offering. The
determination of whether the shares of common stock purchased by these
investors will be included in a future registration statement will be
dependent upon the underwriter or underwriters for said public offering, as
the underwriter or underwriters would have final discretion as to which
shares of common stock will be registered. Our underwriters have determined
that such shares will not be included in this offering.
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<PAGE>
2000 REVERSE STOCK SPLIT
On March 29, 2000, our Board of Directors and a majority of our
stockholders approved by written consent, among other things, the 2000
Reverse Stock Split. The 2000 Reverse Stock Split results in the exchange of
three shares for every four shares of common stock outstanding. The 2000
Reverse Stock Split affects all shares of common stock outstanding and
underlying our options and warrants, but does not affect the Series A, Series
B and Series C convertible preferred stock.
NEVADA LAW AND CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND
BYLAWS
Some of the provisions of our articles of incorporation and bylaws
may have the effect of discouraging some types of transactions that involve
an actual or threatened change of control of eRoom, which in turn could limit
your ability to sell your shares at a premium. Some of these provisions are
summarized below.
SIZE OF BOARD AND ELECTION OF DIRECTORS. Our articles of
incorporation and bylaws, when read together, provide for a minimum of two
and a maximum of nine persons to serve on the Board. However, the number of
directors may be increased or decreased by a resolution adopted by the
affirmative vote of a majority of the Board. Removal of a director requires
two-thirds majority vote of the non-interested members of our Board.
STOCKHOLDER NOMINATIONS AND PROPOSALS. Our bylaws provide for
advance notice requirements for stockholder nominations and proposals at
annual meetings of our stockholders. Stockholders may nominate directors or
submit other proposals only upon written notice to eRoom not less than
120 days nor more than 150 days prior to the anniversary of the date of the
notice to stockholders of the previous year's annual meeting. A stockholder's
notice also must contain certain additional information, as specified in the
bylaws. The Board may reject proposals that are not made in accordance with
the procedures contained in the bylaws or that are not properly the subject
of stockholder action.
CALLING SPECIAL STOCKHOLDER MEETINGS; STOCKHOLDER ACTION WITHOUT A
MEETING. Matters to be acted upon by the stockholders at special meetings are
limited to those specified in the notice of the meeting. A special meeting of
stockholders may be called by the Board, the Chairman or the President of
eRoom by resolution of the Board or at the request in writing of stockholders
holding at least 50% of the outstanding shares entitled to vote at the
special meeting. As allowed by Nevada law, the bylaws provide that any action
by written consent of stockholders in lieu of a meeting must be signed by the
holders of at least a majority of the voting power.
PREFERRED STOCK. We are authorized to issue 5,000,000 shares of
undesignated preferred stock. None of the undesignated preferred stock is
issued or outstanding, and we have no present plans to issue shares of
undesignated preferred stock. Our Board is empowered to issue one or more
series of undesignated preferred stock with such rights, preferences,
restrictions and privileges as may be fixed by our Board, without further
action by our stockholders. The issuance of the undesignated preferred stock
could adversely affect the rights, including voting rights, of the holders of
our common stock and could impede an attempted takeover of us.
NEVADA ANTI-TAKEOVER STATUTES. Nevada law provides that an acquiring
person who acquires a controlling interest in a corporation may only exercise
voting rights on any control shares if those voting rights are conferred by a
majority vote of the corporation's disinterested stockholders at a special
meeting held upon the request of the acquiring person. If the acquiring
person is accorded full voting rights and acquires control shares with at
least a majority of all the voting power, any of our stockholders, who did
not vote in favor of authorizing voting rights for the control shares, are
entitled to payment for the fair value of his shares. A "controlling
interest" is an interest that is sufficient to enable the acquiring person to
exercise at least one-fifth of the voting power of the corporation in the
election of directors. "Control shares" are outstanding voting shares that an
acquiring person or associated persons acquire or offer to acquire in an
acquisition and those shares acquired during the 90-day period before the
person involved became an acquiring person.
In addition, Nevada law restricts the ability of a corporation to
engage in any combination with an interested stockholder for three years from
when the interested stockholder acquires shares that cause the stockholder to
become an interested stockholder, unless the combination or the purchase of
shares by the interested
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stockholder is approved by the board of directors before the stockholder
became an interested stockholder. If the combination was not previously
approved, the interested stockholder may only effect a combination after the
three-year period if the stockholder receives approval from a majority of the
disinterested shares or the offer meets certain fair price criteria.
An "interested stockholder" is a person who is:
- the beneficial owner, directly or indirectly, of 10% or more
of the voting power of the outstanding voting shares of a
corporation; or
- an affiliate or associate of a corporation and, at any time
within three years immediately before the date in question,
was the beneficial owner, directly or indirectly, of 10% or
more of the voting power of the then outstanding shares of a
corporation.
Our articles of incorporation and bylaws do not exclude us from
these restrictions.
These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the board and in the policies
formulated by the board and to discourage some types of transactions that may
involve actual or threatened change of control of our company. These
provisions are designed to reduce our vulnerability to an unsolicited
proposal for a takeover that does not contemplate the acquisition of all of
our outstanding shares or an unsolicited proposal for the potential
restructuring or sale of all or a part of our company. However, these
provisions could discourage potential acquisition proposals and could delay
or prevent a change in control of our company. They may also have the effect
of preventing changes in our management.
TRANSFER AGENT
Our transfer agent is American Stock Transfer and Trust Company. Its
address is 40 Wall Street, New York, New York 10005, and its telephone number
is (718) 921-8360.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common
stock. Future sales of substantial amounts of common stock in the public
market could adversely affect prevailing market prices. As described below,
no shares currently outstanding will be available for sale immediately after
this offering because of contractual restrictions on resale. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse or are released could adversely affect the prevailing
market price and impair our ability to raise equity capital in the future.
Upon completion of the offering, we will have 6,203,172 shares of
common stock outstanding. Of these shares, the 1,800,000 shares sold in the
offering, plus any shares issued upon exercise of the underwriter's
over-allotment option, will be freely tradable without restriction under the
Securities Act, unless purchased by our "affiliates" as that term is defined
in Rule 144 under the Securities Act. In general, affiliates include
officers, directors and/or 10% stockholders.
The remaining 4,403,172 shares outstanding are "restricted
securities" within the meaning of Rule 144. Restricted securities may be sold
in the public market only if registered or if they qualify for an exemption
from registration under Rules 144 or 144(k) promulgated under the Securities
Act, which are summarized below. Sales of the restricted securities in the
public market, or the availability of such shares for sale, could adversely
affect the market price of the common stock.
Our directors, officers and certain stockholders will enter into
lock-up agreements in connection with this offering generally providing that,
without first obtaining the written consent of the underwriter representative:
- they will not offer or sell any of our common stock owned by
them during the first 18 months following the closing of this
offering;
- they will not offer or sell more than 10% of our common stock
owned by them in any of the next two consecutive calendar
quarters; and
- they will not offer or sell more than 25% of our common stock
owned by them in any calendar quarter thereafter.
During such periods, and for an additional period of two years thereafter,
any public sale of our common stock by such stockholders will be effected
through the facilities of the underwriter and such sellers will comply with
the volume limitations of Rule 144(e) even though Rule 144(k) may be
available to sellers.
Taking into account the lock-up agreements, and assuming the
underwriter representative does not release stockholders from these
agreements, the following shares will be eligible for sale in the public
market at the following times:
- Beginning on the date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the
public market.
- Beginning 90 days after the date of this prospectus, shares
will be freely tradable pursuant to Rule 144(k), and
additional shares will be eligible for sale subject to volume
limitations, as explained below, pursuant to Rule 144.
In general, under Rule 144 as currently in effect, after the
expiration of the lock-up agreements, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of:
- one percent of the number of shares of common stock then
outstanding which will equal approximately 62,032 shares
immediately after the offering; or
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- the average weekly trading volume of the common stock during
the four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect
to manner of sale, notice, and the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been our
affiliate during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to
sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits our employees, officers,
directors or consultants who purchased shares pursuant to a written
compensatory plan or contract to resell these shares in reliance upon Rule 144
but without compliance with specific restrictions. Rule 701 provides that
affiliates may sell their Rule 701 shares under Rule 144 without complying
with the holding period requirement and that non-affiliates may sell these
shares in reliance on Rule 144 without complying with the holding period,
public information, volume limitation or notice provisions of Rule 144.
In addition, we intend to file a registration statement on Form S-8
under the Securities Act within 90 days following the date of this prospectus
to register shares to be issued pursuant to our employee benefit plans. As a
result, any options or rights exercised under the 2000 Stock Option Plan will
also be freely tradable in the public market. However, shares held by
affiliates will be subject to the volume limitation, manner of sale, notice
and public information requirements of Rule 144 unless otherwise resaleable
under Rule 701. As of April 13, 2000, there were outstanding options and
warrants for the purchase of 2,502,815 shares of common stock, of which
2,422,482 shares were vested and exercisable.
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UNDERWRITING
We have entered into an underwriting agreement with the underwriters
named below. Donald & Co. Securities Inc., or Donald, is acting as the
representative of the underwriters. The underwriting agreement provides for the
purchase of a specific number of shares of common stock by each of the
underwriters. The underwriters' obligations are several, which means that each
underwriter is required to purchase a specified number of shares, but is not
responsible for the commitment of any other underwriter to purchase shares.
Subject to the terms and conditions of the underwriting agreement, each
underwriter has severally agreed to purchase the number of shares of common
stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Donald & Co. Securities Inc. .............
Moness, Crespi, Hardt & Co., Inc. ........
Win Capital...............................
TOTAL 1,800,000
--------------------
</TABLE>
This is a firm commitment underwriting. This means that the
underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any shares are purchased. Under the underwriting agreement, if an
underwriter defaults in its commitment to purchase shares, the commitments of
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated, depending on the circumstances.
The representative has advised us that the underwriters propose to
offer the shares directly to the public at the public offering price that
appears on the cover page of this prospectus. In addition, the representatives
may offer some of the shares to certain securities dealers at such price less a
concession of $0.6975 per share. The underwriters may also allow, and such
dealers may reallow, a concession not in excess of $__________ per share to
certain other dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at various
times.
We have granted the representatives an over-allotment option. This
option, which is exercisable for up to 30 days after the date of this
prospectus, permits the representatives to purchase a maximum of 270,000
additional shares from us to cover over-allotments. If the underwriters exercise
all or part of this option, they will purchase shares covered by the option at
the public offering price that appears on the cover page of this prospectus,
less the underwriting discount. If this option is exercised in full, the total
price to the public will be $18,630,000, the total proceeds to us will be
$16,999,875.
The following table provides information regarding the amount of the
discount to be received by the underwriters.
<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE OF TOTAL WITH FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
- ------------- --------------------------- -------------------------------
<S> <C> <C>
$ $ $
</TABLE>
We will pay all of the total expenses of the offering, which we
estimate will be approximately $__________ ($__________ if the over-allotment
is exercised). In addition, we will pay to Donald $162,000 for its expenses
($186,300 if the over-allotment is exercised), of which we have paid $25,000.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act.
-54-
<PAGE>
Our officers and directors have agreed that they will not, without
the prior written consent of Donald, directly or indirectly, (i) sell any of
our common stock owned by them during the first 18 months following the
closing of this offering; (ii) offer or sell more than 10% of our common
stock owned by them in any of the next two consecutive calendar quarters and
(iii) offer or sell more than 25% of our common stock owned by them in any
calendar quarter thereafter. During these periods and for an additional
period of two years, any public sale of our securities by these stockholders
will be effected through the facilities of Donald and these stockholders will
comply with the volume limitations of Rule 144(c) even though Rule 144(k) may
be available to the stockholders.
We and our principal stockholders, officers and directors will grant to
Donald a one year right of first refusal to have Donald sell securities under
future public and private offerings of any non bank debt or equity securities of
us or our subsidiaries, by us, our subsidiaries, our affiliates, and/or
principal stockholders, officers and directors, except for issuances or sales to
employees pursuant to our stock option plan.
In addition, for a two year period we will not sell securities to raise
money or issue any options or warrants below the then current market price
without Donald's consent.
We and Donald will enter into a financial consulting agreement
providing for Donald, or its designee, to act as financial consultant to us for
a 12 month period for a fee of $72,000, payable at a rate of $6,000 per month.
We have granted Donald for a period ending on the third anniversary of
the closing of this offering, the right to have Donald's designee present at
meetings of the Board and each of its committees subject to our right to exclude
such designee under certain circumstances. The designee will be entitled to the
same notices and communications sent by us as we gave to our directors and will
attend directors' and committees' meetings, but will not be entitled to vote
thereat. Such designee will also be entitled to receive the same compensation
payable to directors as members of the Board and its committees and all
reasonable expenses in attending such meetings. As of the date of this
prospectus no designee has been selected.
In connection with this offering, we have agreed to sell to Donald, for
nominal consideration, warrants to purchase up to an aggregate of 180,000 shares
of common stock exercisable initially at $9.90 per share of common stock for a
period of four years beginning one year from the date hereof. These warrants
contain antidilution provisions providing for adjustment of the exercise price
upon the occurrence of certain events, including (i) the issuance of common
stock, or securities exercisable or convertible into common stock, at a price
less than the exercise price and (ii) any recapitalization, reclassification,
stock dividend, stock split, stock combination or similar transaction. In
addition, the warrants grant to the holders rights commencing one year from the
date of this prospectus to have common stock issued upon exercise of the
warrants registered under the Securities Act. These rights include the right to
require us to register these shares for a four year period and the right to
include these shares for a six year period in a registration statement filed by
us.
Rules of the Commission may limit the ability of the underwriters to
bid for or purchase shares before the distribution of the shares is completed.
However, the underwriters may engage in the following activities in accordance
with the following rules:
- Stabilizing transactions -- The representatives may make bids or
purchases for the purpose of pegging, fixing or maintaining the
price of shares, so long as stabilizing bids do not exceed a
specified maximum.
- Over-allotments and syndicate covering transactions -- The
underwriters may create a short position in the shares by selling
more shares than are set forth on the cover page of this
prospectus. If a short position is created in connection with the
offering, the representatives may engage in syndicate covering
transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.
-55-
<PAGE>
Stabilization and syndicate covering transactions may cause the price
of the shares to be higher than it would be in the absence of such transactions.
The imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction
as to the effect that the transactions described above may have on the price of
the shares. These transactions may occur on the Nasdaq SmallCap Market or
otherwise. If such transactions are commenced, they may be discontinued without
notice at any time.
- Penalty bids -- If the representative purchases shares in the
open market in a stabilizing transaction or syndicate covering
transaction, they may reclaim a selling concession from the
underwriters and selling group members who sold those shares as
part of this offering.
In March and April 2000, Donald received a fee for acting as our
private placement agent with respect to the sale of units consisting of
Series C convertible preferred stock, convertible subordinated promissory
notes and warrants to purchase common stock and the Bridge Loan.
-56-
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus
will be passed upon for us by Kummer Kaempfer Bonner & Renshaw, Las Vegas,
Nevada. Certain legal matters in connection with the offering will be passed
upon for the underwriters by Parker Duryee Rosoff & Haft, New York, New York.
EXPERTS
The consolidated financial statements included in this prospectus and
elsewhere in the registration statement have been audited by Hansen, Barnett &
Maxwell, Salt Lake City, Utah, independent certified public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm in accounting and auditing.
CHANGE IN ACCOUNTANTS
In September 1999, we engaged the firm of Arthur Andersen LLP to audit
our financial statements for the fiscal years ended December 31, 1998 and 1999.
On March 31, 2000, we received a letter in which Arthur Andersen resigned as our
independent auditors due to its determination that its independence had been
impaired. The resignation of Arthur Andersen was not based upon a disagreement
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure while Arthur Andersen was engaged by
us. On April 4, 2000, our Board approved the retention of Hansen, Barnett &
Maxwell as our independent auditors.
AVAILABLE INFORMATION
We have filed with the Commission a registration statement on Form SB-2
under the Securities Act with respect to the common stock offered in this
prospectus. This prospectus, filed as part of the registration statement, does
not contain all of the information set forth in the registration statement and
its exhibits, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. For further information about us and
the common stock, we refer you to the registration statement and to its
exhibits. Statements in this prospectus about the contents of any contract,
agreement or other document are not necessarily complete and, in each instance,
we refer you to the copy of such contract, agreement or document filed as an
exhibit to the registration statement, and each such statement being qualified
in all respects by reference to the document to which it refers. Anyone may
inspect the registration statement and its exhibits without charge at the public
reference facilities the Commission maintains at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661. You may obtain copies of all or
any part of these materials from the Commission upon the payment of certain fees
prescribed by the Commission. You may also inspect these reports and other
information without charge at a website maintained by the Commission. The
address of this site is http://www.sec.gov. You may also obtain information on
the operation of the public reference facilities of the Commission at
1-800-732-0330.
Upon completion of this offering, we will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and will be required to file reports, proxy statements and other information
with the Commission. You will be able to inspect and copy these reports, proxy
statements and other information at the public reference facilities maintained
by the Commission and at the Commission's regional offices at the addresses
noted above. You also will be able to obtain copies of this material from the
Public Reference Section of the Commission as described above, or inspect them
without charge at the Commission's website. We have applied for quotation of our
common stock on the Nasdaq SmallCap Market. If we receive approval for quotation
on the Nasdaq SmallCap Market, then you will be able to inspect reports, proxy
and information statements and other information concerning us at the National
Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C.
20006.
-57-
<PAGE>
eROOM SYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-5
Consolidated Statements of Stockholders' Deficit...................................... F-6
Consolidated Statements of Cash Flows................................................. F-8
Notes to Consolidated Financial Statements............................................ F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and the Stockholders
eRoom System Technologies, Inc.
We have audited the accompanying consolidated balance sheets of eRoom System
Technologies, Inc. (a Nevada corporation) and subsidiary as of December 31, 1998
and 1999, and the related consolidated statements of operations, stockholders'
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of eRoom System
Technologies, Inc. and subsidiary as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
(excluding non-cash compensation expense (income)) and as of December 31, 1999
had a working capital deficit of $2,598,726, a stockholders' deficit of $23,853,
and was in default under certain debt agreements. During the years ended
December 31, 1998 and 1999, the Company's operations used $2,931,871 and
$2,753,939 of cash, respectively. These matters raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
April 13, 2000
F-2
<PAGE>
eROOM SYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1998 1999
-------------------- --------------------
<S> <C> <C>
CURRENT ASSETS:
Cash.............................................................. $ 1,850 $ 113,252
Accounts receivable, net of allowance for doubtful accounts of
$3,900 and $15,000, respectively................................ 35,655 106,720
Inventories....................................................... 1,488,354 697,033
Prepaid expenses and other........................................ 1,250 6,250
-------------------- --------------------
Total current assets................................. 1,527,109 923,255
-------------------- --------------------
REFRESHMENT CENTERS IN SERVICE, net of accumulated depreciation of
$3,895 and $3,858, respectively................................... 362,266 169,791
-------------------- --------------------
PROPERTY AND EQUIPMENT:
Production equipment.............................................. 138,908 138,908
Computer equipment................................................ 130,951 171,666
Vehicles and other................................................ 76,857 76,857
-------------------- --------------------
346,716 387,431
Less accumulated depreciation and amortization.................... (203,381) (264,946)
-------------------- --------------------
Net property and equipment........................... 143,335 122,485
-------------------- --------------------
INVESTMENT IN WHOLLY OWNED, UNCONSOLIDATED SUBSIDIARY................ -- 2,484,085
-------------------- --------------------
OTHER ASSETS:
Patents and license rights, net of accumulated amortization of
$155,211 and $222,710, respectively............................. 317,279 249,780
Deferred offering and financing costs, net of accumulated
amortization of $749,457 and $0, respectively................... 884 88,000
Deposits and other................................................ 169,416 327,851
-------------------- --------------------
Total other assets................................... 487,579 665,631
-------------------- --------------------
$ 2,520,289 $ 4,365,247
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
eROOM SYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
December 31, 1999
December 31, Pro Forma
----------------------------------------- Stockholders'
1998 1999 Deficit (Note 2)
-------------------- -------------------- -----------------
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Notes payable and current portion of long-term debt...... $ 2,872,570 $ 1,560,458
Current portion of capital lease obligations............. 13,212 22,061
Accounts payable......................................... 1,186,995 987,013
Accrued liabilities...................................... 240,475 337,452
Accrued interest......................................... 293,024 290,117
Customer deposits........................................ 51,010 103,470
Deferred revenue......................................... 63,875 58,868
Notes payable to stockholder............................. 145,750 --
Preferred stock dividends payable........................ 18,542 162,542
-------------------- --------------------
Total current liabilities................... 4,885,453 3,521,981
-------------------- --------------------
LONG-TERM DEBT, net of current portion ..................... 11,719 812,022
-------------------- --------------------
CAPITAL LEASE OBLIGATIONS, net of current portion........... 51,223 55,097
-------------------- --------------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 4, 5 and 9)
STOCKHOLDERS' DEFICIT:
Series A convertible preferred stock, $0.001 par value;
500,000 shares authorized; 360,000 shares outstanding at
December 31, 1998 and 1999 and none pro forma;
liquidation preference $3,762,542 at December 31, 1999
and none pro forma .................................... 1,332,953 1,332,953 $ --
Series B convertible preferred stock, $0.001 par value;
2,500,000 shares authorized, 2,081,680 shares outstanding
at December 31, 1999 and none pro forma; liquidation
preference $20,816,800 at December 31, 1999 and none pro
forma.................................................. -- 6,171,196 --
Series C convertible preferred stock, $0.001 par value;
2,000,000 shares authorized, no shares outstanding..... -- -- --
Undesignated preferred stock, $0.001 par value; 5,000,000
shares authorized; no shares outstanding and none
pro forma.............................................. -- -- --
Common stock, $0.001 par value; 50,000,000 shares
authorized; 3,531,311 and 2,217,291 shares outstanding,
respectively, and 4,159,276 shares pro forma........... 3,532 2,217 4,159
Additional paid-in capital............................... 13,524,736 7,112,734 19,840,595
Warrants and options outstanding......................... 1,043,362 728,538 728,538
Notes receivable from stockholders....................... (4,073,941) (840,000) (840,000)
Accumulated deficit...................................... (14,258,748) (14,531,491) (19,757,145)
-------------------- -------------------- -------------------
Total stockholders' deficit................. (2,428,106) (23,853) $ (23,853)
-------------------- -------------------- ===================
$ 2,520,289 $ 4,365,247
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
eROOM SYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1998 1999
---------------- -------------------
<S> <C> <C>
REVENUE:
Product sales................................................................. $ 916,650 $ 144,282
Revenue sharing arrangements.................................................. 46,524 265,546
Maintenance fees.............................................................. 48,288 182,581
---------------- -------------------
Total revenue.................................................... 1,011,462 592,409
---------------- -------------------
COST OF REVENUE:
Product sales................................................................. 711,355 118,010
Revenue sharing arrangements.................................................. 21,104 165,995
Maintenance................................................................... 60,797 78,518
---------------- -------------------
Total cost of revenue............................................ 793,256 362,523
---------------- -------------------
GROSS MARGIN..................................................................... 218,206 229,886
---------------- -------------------
OPERATING EXPENSES:
Selling, general and administrative (exclusive of non-cash compensation expense
(income) of $4,858,105 and $(3,901,696), respectively)...................... 2,058,150 2,387,811
Research and development...................................................... 284,532 271,231
Non-cash compensation expense (income)........................................ 4,858,105 (3,901,696)
---------------- -------------------
Total operating expenses (income)................................ 7,200,787 (1,242,654)
---------------- -------------------
INCOME (LOSS) FROM OPERATIONS.................................................... (6,982,581) 1,472,540
---------------- -------------------
OTHER INCOME (EXPENSE):
Interest expense.............................................................. (1,922,638) (1,444,532)
Equity in income of unconsolidated, wholly owned subsidiary................... -- 95,723
Interest and other income..................................................... 312,573 210,794
---------------- -------------------
Other expense, net............................................... (1,610,065) (1,138,015)
---------------- -------------------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS ON EXTINQUISHMENT OF DEBT................ (8,592,646) 334,525
EXTRAORDINARY LOSS ON EXTINQUISHMENT OF DEBT, net of income tax benefit of $0.... (407,000) --
---------------- -------------------
NET INCOME (LOSS)................................................................ (8,999,646) 334,525
DIVIDENDS RELATED TO CONVERTIBLE PREFERRED STOCK................................. (18,542) (607,268)
---------------- -------------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS..................................... $ (9,018,188) $ (272,743)
================ ===================
BASIC AND DILUTED EXTRAORDINARY LOSS PER COMMON SHARE............................ $ (0.13) $ --
================ ===================
BASIC AND DILUTED NET LOSS PER COMMON SHARE...................................... $ (2.98) $ (0.09)
================ ===================
BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING..................... 3,028,982 3,220,709
================ ===================
BASIC AND DILUTED SUPPLEMENTAL PRO FORMA NET LOSS PER COMMON SHARE (unaudited)... $ (1.07)
===================
BASIC AND DILUTED SUPPLEMENTAL PRO FORMA WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (unaudited)....................................................... 5,162,694
===================
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
eROOM SYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible
Preferred Stock Preferred Stock Common Stock
---------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 ............. - $ - - $ - 3,285,733 $ 3,286
Issuance of Series A convertible
preferred stock upon conversion of
1996 Notes at $5.00 per share, net
and issuance of common stock and
warrants to placement agent .......... 360,000 1,332,953 - - 13,125 13
Issuance of common stock in connection
with conversion of 1996 Notes into
Series A convertible preferred stock.. - - - - 38,156 38
Issuance of common stock for cash at
$10.67 per share, net and issuance of
warrants to placement agent .......... - - - - 40,688 41
Return of shares held in treasury to
stockholder in connection with
default of note payable .............. - - - - - -
Issuance of common stock in connection
with conversion of 60-day convertible
notes and 1996 Notes ................. - - - - 84,661 85
Stock dividend issued to placement
agent in connection with antidilution
rights ............................... - - - - 68,948 69
Amortization of deferred compensation .. - - - - - -
Issuance of warrants in connection with
financing transactions ............... - - - - - -
Compensation expense related to
variable award stock options ......... - - - - - -
Issuance of stock options to a
consultant for services .............. - - - - - -
Accrual of interest on notes receivable
from stockholders .................... - - - - - -
Series A convertible preferred stock
dividend accrual ..................... - - - - - -
Net loss ............................... - - - - - -
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1998 ............. 360,000 1,332,953 - - 3,531,311 3,532
<CAPTION>
Warrants Notes
Additional And Deferred Receivable
Paid-in Options Accumulated Compensa- From
Capital Outstanding Deficit tion Shareholders
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 ............. $ 6,910,699 $ 225,904 $ (5,240,376) $ (41,019) $ (3,799,250)
Issuance of Series A convertible
preferred stock upon conversion of
1996 Notes at $5.00 per share, net
and issuance of common stock and
warrants to placement agent .......... 139,987 17,479 - - -
Issuance of common stock in connection
with conversion of 1996 Notes into
Series A convertible preferred stock.. 406,962 - - - -
Issuance of common stock for cash at
$10.67 per share, net and issuance of
warrants to placement agent .......... 371,644 18,358 - - -
Return of shares held in treasury to
stockholder in connection with
default of note payable .............. - - - - -
Issuance of common stock in connection
with conversion of 60-day convertible
notes and 1996 Notes ................. 841,179 - - - -
Stock dividend issued to placement
agent in connection with antidilution
rights ............................... 115 - (184) - -
Amortization of deferred compensation .. - - - 41,019 -
Issuance of warrants in connection with
financing transactions ............... - 777,666 - - -
Compensation expense related to
variable award stock options ......... 4,854,150 - - - -
Issuance of stock options to a
consultant for services .............. - 3,955 - - -
Accrual of interest on notes receivable
from stockholders .................... - - - - (274,691)
Series A convertible preferred stock
dividend accrual ..................... - - (18,542) - -
Net loss ............................... - - (8,999,646) - -
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1998 ............. 13,524,736 1,043,362 (14,258,748) - (4,073,941)
<CAPTION>
Treasury Stock
---------------------------
Shares Amount Total
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE, December 31, 1997 ............. (187,500) $ (500,000) $(2,440,756)
Issuance of Series A convertible
preferred stock upon conversion of
1996 Notes at $5.00 per share, net
and issuance of common stock and
warrants to placement agent .......... - - 1,490,432
Issuance of common stock in connection
with conversion of 1996 Notes into
Series A convertible preferred stock.. - - 407,000
Issuance of common stock for cash at
$10.67 per share, net and issuance of
warrants to placement agent .......... - - 390,043
Return of shares held in treasury to
stockholder in connection with
default of note payable .............. 187,500 500,000 500,000
Issuance of common stock in connection
with conversion of 60-day convertible
notes and 1996 Notes ................. - - 841,264
Stock dividend issued to placement
agent in connection with antidilution
rights ............................... - - -
Amortization of deferred compensation .. - - 41,019
Issuance of warrants in connection with
financing transactions ............... - - 777,666
Compensation expense related to
variable award stock options ......... - - 4,854,150
Issuance of stock options to a
consultant for services .............. - - 3,955
Accrual of interest on notes receivable
from stockholders .................... - - (274,691)
Series A convertible preferred stock
dividend accrual ..................... - - (18,542)
Net loss ............................... - - (8,999,646)
------------ ------------ ------------
BALANCE, December 31, 1998 ............. - - (2,428,106)
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
eROOM SYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(CONTINUED)
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible
Preferred Stock Preferred Stock Common Stock
---------------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Series B convertible
preferred stock for cash and
conversion of notes at $3.00 per
share, net ............................. - - 2,081,680 5,849,826 - -
Issuance of common stock to entity
controlled by the Company's president
in exchange for note receivable ........ - - - - 198,750 199
Return of common stock from entity
controlled by the Company's president .. - - - - (198,750) (199)
Issuance of common stock in connection
with conversion of notes payable to
stockholders at $3.20 per share ........ - - - - 82,140 82
Issuance of common stock in connection
with 90-day convertible notes at
$3.20 per share ........................ - - - - 37,409 37
Issuance of common stock for services
at $3.20 per share and issuance of
stock options .......................... - - - - 1,864 2
Reversal of compensation expense
related to variable award stock
options ................................ - - - - - -
Issuance of warrants in connection with
financing transactions ................. - - - - - -
Return of warrants in connection with
troubled debt restructuring ............ - - - - - -
Accrual of interest on notes receivable
from stockholders ...................... - - - - - -
Series A convertible preferred stock
dividend accrual ....................... - - - - - -
Series B convertible preferred stock
dividend accrual payable in the form
of common stock ........................ - - - - 35,567 35
Series B convertible preferred stock
beneficial conversion dividend ......... - - - 321,370 - -
Return of common stock as payment of
shareholder notes receivable ........... - - - - (1,471,000) (1,471)
Reserve for shareholder notes receivable . - - - - - -
Net income ............................... - - - - - -
---------- ------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1999 ............... 360,000 $1,332,953 2,081,680 $6,171,196 2,217,291 $ 2,217
========== ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Warrants Notes
Additional And Deferred Receivable
Paid-in Options Accumulated Compensa- From
Capital Outstanding Deficit tion Shareholders
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Issuance of Series B convertible
preferred stock for cash and
conversion of notes at $3.00 per
share, net ............................. - - - - -
Issuance of common stock to entity
controlled by the Company's president
in exchange for note receivable ........ 1,589,801 - - - (1,590,000)
Return of common stock from entity
controlled by the Company's president .. (1,589,801) - - - 1,590,000
Issuance of common stock in connection
with conversion of notes payable to
stockholders at $3.20 per share ........ 264,400 - - - -
Issuance of common stock in connection
with 90-day convertible notes at
$3.20 per share ........................ 121,570 - - - -
Issuance of common stock for services
at $3.20 per share and issuance of
stock options .......................... 5,963 99,040 - - -
Reversal of compensation expense
related to variable award stock
options ................................ (4,006,700) - - - -
Issuance of warrants in connection with
financing transactions ................. - 92,830 - - -
Return of warrants in connection with
troubled debt restructuring ............ - (506,694) - - -
Accrual of interest on notes receivable
from stockholders ...................... - - - - (235,951)
Series A convertible preferred stock
dividend accrual ....................... - - (144,000) - -
Series B convertible preferred stock
dividend accrual payable in the form
of common stock ........................ 141,863 - (141,898) - -
Series B convertible preferred stock
beneficial conversion dividend ......... - - (321,370) - -
Return of common stock as payment of
shareholder notes receivable ........... (2,939,098) - - - 2,940,569
Reserve for shareholder notes receivable . - - - - 529,323
Net income ............................... - - 334,525 - -
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1999 ............... $ 7,112,734 $ 728,538 $(14,531,491) $ - $ (840,000)
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
----------------------------
Shares Amount Total
------------ ------------ ------------
<S> <C> <C> <C>
Issuance of Series B convertible
preferred stock for cash and
conversion of notes at $3.00 per
share, net ............................. - - 5,849,826
Issuance of common stock to entity
controlled by the Company's president
in exchange for note receivable ........ - - -
Return of common stock from entity
controlled by the Company's president .. - - -
Issuance of common stock in connection
with conversion of notes payable to
stockholders at $3.20 per share ........ - - 264,482
Issuance of common stock in connection
with 90-day convertible notes at
$3.20 per share ........................ - - 121,607
Issuance of common stock for services
at $3.20 per share and issuance of
stock options .......................... - - 105,005
Reversal of compensation expense
related to variable award stock
options ................................ - - (4,006,700)
Issuance of warrants in connection with
financing transactions ................. - - 92,830
Return of warrants in connection with
troubled debt restructuring ............ - - (506,694)
Accrual of interest on notes receivable
from stockholders ...................... - - (235,951)
Series A convertible preferred stock
dividend accrual ....................... - - (144,000)
Series B convertible preferred stock
dividend accrual payable in the form
of common stock ........................ - - -
Series B convertible preferred stock
beneficial conversion dividend ......... - - -
Return of common stock as payment of
shareholder notes receivable ........... - - -
Reserve for shareholder notes receivable . - - 529,323
Net income ............................... - - 334,525
------------ ------------ ------------
BALANCE, December 31, 1999 ............... - $ - $ (23,853)
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
eROOM SYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1999
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................ $ (8,999,646) $ 334,525
Adjustments to reconcile net income (loss) to net cash used in operating
activities-
Depreciation and amortization.......................................... 134,617 129,027
Amortization of deferred offering and financing costs and accretion of
debt discount........................................................ 605,236 48,825
Interest accrued on notes receivable from stockholders................. (274,691) (235,951)
Non-cash compensation expense (income)................................. 4,858,105 (3,901,695)
Extraordinary loss related to debt extinquishment...................... 407,000 --
Non-cash interest expense related to issuance of warrants and stock
options.............................................................. 777,666 478,919
Reserve against stockholders notes receivable.......................... -- 529,323
Amortization of deferred compensation.................................. 41,019 --
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable............................. 182,643 (71,065)
Increase in inventories................................................ (808,192) (206,666)
Increase in prepaid expenses, deposits and other....................... (108,099) (163,435)
Increase (decrease) in accounts payable................................ 241,016 (97,692)
Increase (decrease) in accrued liabilities............................. (180,704) 96,977
Increase in accrued interest........................................... 287,116 257,506
Increase (decrease) in customer deposits............................... (68,690) 52,470
Decrease in deferred revenue........................................... (26,267) (5,007)
------------------ -------------------
Net cash used in operating activities....................... (2,931,871) (2,753,939)
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to refreshment centers in service.............................. (246,161) (543,586)
Purchase of property and equipment....................................... (50,599) (12,236)
Cash investment in wholly owned, unconsolidated subsidiary............... -- (750,000)
------------------ -------------------
Net cash used in investing activities....................... (296,760) (1,305,822)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings................................................. 2,265,058 792,547
Principal payments on borrowings......................................... (127,971) (401,080)
Proceeds from issuance of notes payable to officers and stockholders..... -- 299,195
Principal payments on notes payable to stockholder and officer........... (12,500) --
Principal payments on capital lease obligations.......................... (9,190) (15,755)
Other offering and financing costs paid.................................. (204,843) (88,000)
Proceeds from issuance of common stock................................... 390,043 --
Proceeds from issuance of preferred stock................................ 600,275 3,584,256
------------------ -------------------
Net cash provided by financing activities................... 2,900,872 4,171,163
------------------ -------------------
NET INCREASE (DECREASE) IN CASH............................................. (327,759) 111,402
CASH AT BEGINNING OF YEAR................................................... 329,609 1,850
================== ===================
CASH AT END OF YEAR......................................................... $ 1,850 $ 113,252
================== ===================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................................... $ 296,935 $ 130,640
Non-cash investing and financing activities -
Issuance of common stock in payment of debt offering costs............. 84,000 --
Accrual of preferred stock dividends................................... 18,542 607,268
Issuance of common stock as payment of debt obligations................ 1,261,521 --
Issuance of preferred stock as payment of debt obligations............. 1,040,000 2,265,599
Accrued interest, accounts payable and warrants converted to debt...... -- 907,956
Cancellation of stockholder notes receivable and related accrued
interest in exchange for return of 1,471,000 shares of common stock. -- 2,940,569
</TABLE>
F-8
<PAGE>
eROOM SYSTEM TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF OPERATIONS
ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
eRoom System Technologies, Inc., a Nevada corporation ("eRoom"), is the
successor to RoomSystems, Inc. ("RSI"). RSI was originally incorporated
as InnSyst! Corporation, a North Carolina corporation, on March 17, 1993
and on April 17, 1996, was reincorporated as a Nevada corporation.
On April 29, 1996, RSI and RoomSystems Finance Corporation ("RSF")
entered into a Reorganization Plan and Merger Agreement whereby RSF
became a wholly owned subsidiary of RSI (see Note 3). On October 15,
1997, the operations of RSF were effectively transferred to RSI and RSF
was dissolved. On August 31, 1999, RoomSystems International Corporation
("RSIC") was incorporated in Nevada as a wholly owned subsidiary of RSI.
As of December 31, 1999, RSI, RSIC and their shareholders entered into an
Agreement and Plan of Reorganization wherein RSI became a wholly owned
subsidiary of RSIC. On March 29, 2000, RSIC changed its name to eRoom
System Technologies, Inc.
These reorganizations have been accounted for as reorganizations of
entities under common control with the assets and liabilities reflected
at carry-over basis in a manner similar to pooling-of-interests
accounting. The accompanying consolidated financial statements have been
restated to reflect the equivalent eRoom shares for all periods
presented.
On September 29, 1999, eRoom formed a new bankruptcy-remote entity, RSi
BRE, Inc. ("RSi BRE"), as a wholly owned subsidiary (see Note 4).
The accompanying consolidated financial statements include the accounts
of eRoom, and its wholly owned subsidiary RSI, after elimination of
intercompany accounts and transactions. RSi BRE has not been consolidated
in the accompanying financial statements since the Company does not have
the ability to control RSi BRE's operations. eRoom and RSI are
collectively referred to as "eRoom" or the "Company." RSi BRE has been
accounted for under the equity method of accounting.
NATURE OF OPERATIONS AND RELATED RISKS
The Company designs, assembles and markets a complete line of
fully-automated Refreshment Centers and RoomSafes traditionally installed
in hotels. The Refreshment Centers and RoomSafes use proprietary software
and patented credit card technology that integrate with the data
collection computer in each hotel.
The Company has suffered recurring net losses (exclusive of non-cash
compensation expense (income)) and as of December 31, 1999, had a working
capital deficit of $2,598,726, a stockholders' deficit of $23,853, and
was in default under certain debt agreements. During the years ended
December 31, 1998 and 1999, the Company's operations used $2,931,871 and
$2,753,939 of cash, respectively. Additionally, at December 31, 1999 the
Company was past due on accounts payable with several vendors which could
affect the Company's ability to procure inventory and services for its
operations. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The Company needs to obtain
additional financing to fund payment of past due and current debt
obligations and to provide working capital for operations. Management is
attempting to raise additional equity capital through a public offering
of common stock and a private offering of preferred stock and debt, and
to arrange debt financing for product sales. Subsequent to December 31,
1999, the Company has obtained $1,140,009 in additional equity funding
(see Note 14). The
F-9
<PAGE>
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be
unable to continue as a going concern.
The Company is subject to certain risk factors frequently encountered by
companies lacking adequate capital and which are in the early stages of
developing a business line that may impact its ability to become a
profitable enterprise. These risk factors include, among others:
a. The Company's business model is capital intensive and will require
significant additional equity or debt financing. This additional
funding may not be available in sufficient amounts or on
acceptable terms to the Company, or at all.
b. The Company faces competition from companies that have
substantially greater capital resources, research and development,
manufacturing and marketing resources than the Company.
c. The Company's ability to implement its strategy is dependent upon
its ability to retain key employees, ability to attract and retain
additional qualified personnel and its ability to manage expansion
effectively.
2. SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
The Company's Board of Directors has authorized the filing of a
registration statement with the United States Securities and Exchange
Commission to register shares of its common stock in connection with a
proposed initial public offering ("IPO"). If the IPO is consummated
under the terms presently anticipated, 360,000 outstanding shares of
Series A convertible preferred stock and 2,081,680 outstanding shares
of Series B convertible preferred stock as of December 31, 1999 will
be automatically converted into 1,941,985 shares of common stock upon
the closing of the IPO. In connection with the Series A preferred
stock conversion, the Company will record a dividend of $1,800,000
related to the contingent beneficial conversion feature (see Note 10).
On the date of issuance, the Series B convertible preferred stock
beneficial conversion feature totaled $3,747,024 as adjusted, and is
being recognized over the period from the date of issuance of the
Series B convertible preferred stock to September 28, 2000, which is
the earliest date at which the Series B convertible preferred
stockholders have the unmitigated option to convert their shares.
During the year ended December 31, 1999, the Company recorded a
dividend of $321,370 to the Series B stockholders related to the
beneficial conversion feature. The remaining portion of the Series B
convertible preferred stock beneficial conversion feature, as
adjusted, will be recognized as a dividend to the holders of Series B
convertible preferred stock during the period commencing January 1,
2000 and ending September 28, 2000. The effect of the conversion of the
preferred stock outstanding at December 31, 1999 and the related
beneficial conversion features have been reflected as unaudited pro
forma stockholders' equity in the accompanying consolidated balance
sheet.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
F-10
<PAGE>
INVENTORIES
Inventories include direct materials, direct labor and manufacturing
overhead costs and are stated at the lower of cost (using the first-in,
first-out method) or market value. Inventories consist of the following
as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
--------------------- ---------------------
<S> <C> <C>
Finished goods......................... $ 997,248 $ 284,382
Work-in-process........................ 115,561 160,764
Parts and raw materials................ 375,545 251,887
--------------------- ---------------------
$ 1,488,354 $ 697,033
===================== =====================
</TABLE>
Provisions, when required, are made to reduce excess and obsolete
inventories to their estimated net realizable values. Due to competitive
pressures and technical innovation, it is possible that estimates of the
net realizable value could change in the near term.
REFRESHMENT CENTERS IN SERVICE AND PROPERTY AND EQUIPMENT
Refreshment Centers (including RoomSafes, if applicable) and property and
equipment are stated at cost, less accumulated depreciation and
amortization. Major additions and improvements are capitalized, while
minor repairs and maintenance costs are expensed when incurred.
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the related assets, after taking into
consideration residual values for Refreshment Centers, which are as
follows:
<TABLE>
<S> <C>
Refreshment Centers in Service....................... 7 years
Production equipment................................. 3 - 5 years
Computer and office equipment........................ 3 - 7 years
Vehicles............................................. 7 years
</TABLE>
Depreciation and amortization expense related to Refreshment Centers in
service and property and equipment was $84,028 and $277,030 for the years
ended December 31, 1998 and 1999, respectively.
On retirement or disposition of property and equipment, the cost and
related accumulated depreciation and amortization are removed from the
accounts and any resulting gain or loss is recognized in the statement of
operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the accompanying consolidated financial
statements for cash, accounts receivable and accounts payable approximate
fair values because of the immediate or short-term maturities of these
financial instruments. The carrying amounts of the Company's debt
obligations approximate fair value based on current interest rates.
CAPITALIZED SOFTWARE COSTS
In accordance with Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed" development costs incurred in the research and development of
new software products to be sold, leased or otherwise marketed are
expensed as incurred until technological feasibility in the form of a
working model has been established. Internally generated capitalizable
software development costs have not been material for the years ended
December 31, 1998 and 1999. The Company has charged its software
development costs to research and development expense in the accompanying
consolidated statements of operations.
F-11
<PAGE>
PATENTS AND LICENSE RIGHTS
Patents and license rights consist of patents and licenses purchased from
a related party (see Note 6). These costs are being amortized on a
straight-line basis over the estimated life of the related patents or
licenses of 7 years. Management evaluates the recoverability of these
costs on a periodic basis, based on revenues from the products related to
the technology, existing or expected revenue trends and projected cash
flows.
DEFERRED OFFERING AND FINANCING COSTS
The Company capitalizes direct costs associated with the acquisition of
debt financing. These costs are amortized over the life of the related
debt as additional interest expense. If the underlying debt is repaid or
extinguished prior to the scheduled maturity, the costs are removed from
the accounts and considered in the determination of the gain or loss from
extinguishment. Certain debt has been converted to equity and the related
unamortized debt financing costs have been recorded as equity offering
costs. The Company also capitalizes direct costs associated with the
acquisition of equity financing which are netted against the actual
equity proceeds.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including intangibles, for
impairment when events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. The Company evaluates,
at each balance sheet date, whether events and circumstances have
occurred which indicate possible impairment. The Company uses an estimate
of future undiscounted net cash flows from the related asset or group of
assets over their remaining life in measuring whether the assets are
recoverable. As of December 31, 1999, the Company does not consider any
of its long-lived assets to be impaired.
REVENUE RECOGNITION
The Company generates revenues from either the sale of Refreshment
Centers and RoomSafes or from leases of Refreshment Centers and RoomSafes
under revenue sharing agreements. Under the revenue sharing agreements,
the Company receives a portion of the sales generated by the units and
under certain agreements is guaranteed a minimum daily revenue amount.
The Company also generates revenues from maintenance services.
Revenue from the sale of Refreshment Centers and RoomSafes is recognized
upon completion of installation and acceptance by the customer. The
revenue sharing agreements are accounted for as operating leases with
revenues being recognized as earned over the lease period. Maintenance
revenues are recognized as the services are performed or pro rata over
the service period. The maintenance services are not integral to the
functionality of the Refreshment Centers and are at the option of the
customer. In connection with the revenue sharing agreements, a portion of
the revenues received by the Company are classified as maintenance fees
based upon vendor-specific objective evidence of fair value. The Company
defers revenue paid in advance relating to future services and products
not yet installed and accepted by the customer.
INCOME TAXES
The Company recognizes a liability or asset for the deferred tax
consequences of all temporary differences between the tax bases of assets
or liabilities and their reported amounts in the financial statements
that will result in taxable or deductible amounts in future years when
the reported amounts of the assets or liabilities are recovered or
settled. These deferred tax assets or liabilities are measured using the
enacted tax rates that will be in effect when the differences are
expected to reverse. Deferred tax assets are reviewed periodically for
recoverability and valuation allowances are provided, as necessary.
F-12
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes new
accounting and reporting standards for companies to report information
about derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives),
and for hedging activities. This statement is effective for financial
statements issued for all fiscal quarters of fiscal years beginning after
June 15, 2000. The Company does not expect this statement to have a
material impact on the Company's results of operations, financial
position or liquidity.
NET LOSS PER COMMON SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings Per Share" ("SFAS 128"), and SEC Staff Accounting Bulletin No.
98 ("SAB 98"). Under the provisions of SFAS 128 and SAB 98, basic net
loss per common share ("Basic EPS") is computed by dividing net loss
available to common stockholders by the weighted average number of common
shares and the dilutive potential common share equivalents then
outstanding. Potential common share equivalents consist of shares
issuable upon the exercise of stock options, warrants and shares issuable
upon the conversion of Series A and Series B convertible preferred stock.
As of December 31, 1998 and 1999, there were 360,000 shares of Series A
convertible preferred stock outstanding, as of December 31, 1999 there
were 2,081,680 shares of Series B convertible preferred stock
outstanding, and as of December 31, 1998 and 1999, there were options and
warrants outstanding to purchase 598,030 and 866,508 shares of common
stock, respectively, that were not included in the computation of diluted
net loss per common share as their effect would have been anti-dilutive,
thereby decreasing the net loss per common share.
3. MERGER WITH RSF AND RELATED AGREEMENTS
RSF was incorporated in April 1995 by eRoom's president and one of the
Company's legal advisors, both of whom are stockholders of the Company,
for the purpose of arranging financing for the sale or lease of
Refreshment Centers. The separate legal entity was a requirement of PFC
Group, Inc. ("PFC"), an unrelated lender under the Assignment Agreement
discussed below.
In May 1995, RSI and RSF entered into a Master Sale and Assignment
Agreement (the "Assignment Agreement") with PFC. Under the Assignment
Agreement, Refreshment Centers were manufactured by RSI and sold to RSF.
RSF entered into revenue sharing agreements with certain hotels and
obtained financing from PFC to purchase the units from RSI. RSI entered
into installation, maintenance and license agreements with the hotels and
provided the related services. Title to the Refreshment Centers was
transferred to PFC; however, RSF had an option to repurchase the units at
the end of the lease for ten percent of the net book value of the
equipment, as defined.
In January 1996, RSF entered into a stock purchase and sale agreement
with PFC in which RSF acquired the residual value of the Refreshment
Centers sold to PFC under the Assignment Agreement in exchange for shares
of RSF's common stock. On April 29, 1996, RSI and RSF entered into a
Reorganization Plan and Merger Agreement whereby RSF became a wholly
owned subsidiary of RSI.
4. RSG INVESTMENT TRANSACTIONS AND SETTLEMENT
On July 17, 1998, the Company entered into an Equipment Purchase and Sale
Agreement (the "Equipment Agreement") with RSG Investments, LLC ("RSG"),
an unrelated lender. Under the terms of the Equipment Agreement, RSG paid
$1.5 million for the production of approximately 2,270 Refreshment
Centers (the "RSG Units") to be installed in six hotel properties in the
United States under revenue sharing agreements. Pursuant to the Equipment
Agreement, title to the RSG units transferred to RSG and the Company was
to repurchase the RSG Units within 75 days, or by September 30, 1998. The
repurchase price was based upon the $1.5 million bearing interest at 15
percent per annum and was secured by common stock of the Company pledged
by certain officers, directors and consultants to the Company and the
assets of the Company. Due to
F-13
<PAGE>
the Company's obligation to repurchase the RSG Units, this transaction
was treated as a collateralized borrowing in the accompanying
December 31, 1998 consolidated balance sheet.
As an inducement for RSG to enter into the Equipment Agreement, the
Company issued to the principals of RSG warrants to purchase 46,875
shares of common stock at $12.80 per share. These warrants were valued by
the Company at the time of issuance at $253,347 using the Black-Scholes
option pricing model with the following assumptions: risk-free interest
rate of 5.5 percent, expected dividend yield of 0 percent, volatility of
58.2 percent, and expected life of 4.9 years. In the event that the
Company did not meet the obligation to repurchase the units, additional
warrants to purchase 9,375 shares of the Company's common stock at $12.80
per share accrued to RSG Investments' every thirty days through January
28, 1999, whereupon the Equipment Agreement would be in default.
During the years ended December 31, 1998 and 1999, the Company issued
additional warrants to purchase 37,500 and 9,375 shares of common stock,
respectively, in connection with the Equipment Agreement. These
additional warrants were valued by the Company at the time of issuance at
$202,597 and $50,750, respectively, using the Black-Scholes option
pricing model with the following assumptions: risk-free interest rate of
5.5 percent, expected dividend yield of 0 percent, volatility of 58.2
percent, and expected life of 4.9 years. All of the warrants issued to
RSG were exercisable for a period of three years subsequent to the
Company's IPO.
On January 28, 1999, the Company was unable to meet the terms of the
repurchase obligation and the Equipment Agreement was in default. RSG
granted the Company several extensions to meet the terms under the
Equipment Agreement, the last of which was signed on May 19, 1999. RSG
placed certain conditions on the Company, the failure to meet any of the
conditions would result in RSG`s foreclosure on the pledged common stock
and the assets of the Company.
On September 28, 1999, the Company and RSG entered into a settlement
agreement in the form of the Equipment Transfer Agreement (the "Transfer
Agreement"), which provided for the following:
- eRoom formed a new bankruptcy-remote entity, RSi BRE, Inc. ("RSi
BRE"), as a wholly owned subsidiary. The ownership of the RSG Units
(2,270) and the related revenue sharing agreements were transferred
to RSi BRE. RSG is to receive $0.57 per unit per day of the revenue
realized from the revenue sharing agreements covering 2,047 of the
RSG Units over the remaining life of their seven year revenue
sharing agreements. However, the $0.57 per unit per day is paid only
after $0.11 per unit per day has been paid to eRoom to cover taxes
and maintenance. To the extent that at least $0.68 per unit per day
in revenue is not realized from the RSG Units, the Company has no
obligation to pay the difference to RSG. Rather, RSG is subject to
the risk that revenues generated from the RSG Units are not at least
$0.68 per unit per day. To the extent that the revenue per unit per
day exceeds $0.68, the incremental amount is paid to the eRoom.
- RSG converted one-third of the principal amount of the loan, or
$500,000, into 166,667 shares, at $3.00 per share, of Series B
convertible preferred stock.
- eRoom paid $250,000 to RSG upon the execution of the Transfer
Agreement and executed a promissory note in the amount of $750,000
bearing 10 percent interest to be repaid on the earlier of May 1,
2000 or 30 days after the completion of the Company's IPO. This note
is secured by the assets of the Company.
- eRoom transferred $750,000 of cash and other assets into RSi BRE to
pay for the manufacture and installation of at least an additional
750 Refreshment Centers. If eRoom fails to pay the $750,000 note to
RSG prior to December 31, 2000, the $750,000 note will be forgiven
and in exchange RSG will receive $0.57 per unit per day from the
additional 750 units over the remaining term of their seven year
revenue sharing agreements. This obligation is under the same terms
as the $0.57 per unit per day payments discussed above.
F-14
<PAGE>
- RSG terminated the pledge of the common stock of the stockholders
and the assets of the Company.
- RSG remitted to the Company all payments received under the revenue
sharing agreements for the RSG Units.
- RSG forgave the interest due on the repurchase obligation up to
August 1, 1999.
- RSG returned to eRoom the warrants to purchase 93,750 shares of the
Company's common stock, and the warrants which accrued during the
period commencing September 30, 1998 through January 28, 1999.
In accordance with SFAS No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings," the Company has accounted for this
transaction as a troubled debt restructuring. Accordingly, no gain or
loss has been recognized from this transaction. Rather, the Company
combined all liabilities to RSG at the time of the Transfer Agreement
including the principal amount of the repurchase obligation of
$1,500,000, accrued interest of $298,849 and the value of the warrants of
$506,694. The total liability of $2,305,543 was reduced by the $250,000
of cash paid and the $500,000 of Series B convertible preferred stock
that was issued to RSG. The remaining liability is being amortized by the
Company over the remaining life of the underlying revenue sharing
agreements using an estimated effective interest rate of approximately 41
percent. This estimated effective interest rate could fluctuate in future
periods depending upon the level and timing of revenues generated from
the RSG units and the timing of the remaining $750,000 payment due to
RSG.
The board of directors of RSi BRE is comprised of one appointee from the
Company, one appointee from RSG and one independent appointee. All
operating decisions, including disbursements, of RSi BRE require
unanimous consent of RSi BRE's board of directors. As a result, the
Company does not control RSi BRE. In accordance with EITF 96-16,
"Investor's Accounting for an Investee When the Investor has a Majority
of the Voting Interest But the Minority Shareholder or Shareholders Have
Certain Approval or Veto Rights", the Company has determined that RSi BRE
does not qualify for consolidation in the Company's financial statements.
Rather, the Company's investment in RSi BRE is reflected as an
"Investment in Wholly Owned, Unconsolidated Subsidiary" in the
accompanying December 31, 1999 consolidated balance sheet and is being
accounted for under the equity method of accounting. At December 31,
1999, the assets and liabilities of RSi BRE consisted of the following:
<TABLE>
<S> <C>
Cash.................................................. $ 189,659
Inventory............................................. 414,860
Refreshment centers in service........................ 2,097,363
Accumulated depreciation.............................. (217,797)
-----------------
Net assets......................................... $ 2,484,085
=================
</TABLE>
For the period from its inception (September 29, 1999) to December 31,
1999, the revenues and expenses of RSi BRE consisted of the following:
<TABLE>
<S> <C>
Revenue sharing agreement revenues.................... $ 161,027
Depreciation.......................................... (53,947)
Other operating expenses.............................. (16,654)
Interest income....................................... 5,297
-----------------
Net income......................................... $ 95,723
=================
</TABLE>
F-15
<PAGE>
5. NOTES PAYABLE AND LONG-TERM DEBT
1996 PRIVATE DEBT OFFERING
During the period from September through December 31, 1996, the Company
raised $1,310,000 of debt funding through a best efforts private
placement of promissory notes (the "1996 Notes"). An additional $160,000
was raised through March 1997. The 1996 Notes bore interest at 12 percent
per annum paid quarterly and matured one year from the date of issuance.
In the event the Company did not repay all principal and accrued interest
at the end of the one-year term, the 1996 Notes were extended for an
additional year and the interest rate increased to 15 percent per annum.
If the 1996 Notes were extended for the additional year, all outstanding
principal was to be amortized on a monthly basis over the second year.
The 1996 Notes are secured by the assets of the Company.
The investors in the 1996 Notes were also issued 242,550 warrants to
purchase shares of common stock of eRoom at $2.67 per share which are
exercisable for a period of the earlier of the five years from the date
of issuance or three years subsequent to the closing of the Company's
IPO. The warrants issued in connection with the debt were valued by the
Company at the time of issuance at $148,764 using the Black-Scholes
option pricing model with the following assumptions: risk free interest
rate of 5.4 percent, expected dividend yield of 0 percent, volatility of
22.2 percent, and expected life of 3.3 years. The value of the warrants
was recorded as warrants outstanding and the related debt was recorded
net of the value of the warrants. The difference between the face amount
of the debt and the recorded value was accreted to interest expense over
the extended term of the debt. In addition, the Company agreed to pay the
placement agent a 12 percent selling commission and issued the agent and
brokers 86,250 warrants to purchase common stock at $2.67 per share which
are exercisable for a period of the earlier of five years from the date
of issuance or three years subsequent to the Company's IPO. The value of
the these warrants of $52,900 was determined using the Black-Scholes
option pricing model with the assumptions disclosed above. The
commissions paid of $157,200 were recorded as deferred debt offering
costs and were amortized to interest expense over the extended term of
the debt.
During late 1997 and early 1998, the Company defaulted on all of the 1996
Notes. To avoid foreclosure on the assets of the Company by the holders
of 1996 Notes, the Company agreed to issue each of the holders of the
1996 Notes the following:
- On a monthly basis commencing on the maturity date of each note
and continuing until the date of pay off or conversion into
equity securities, a warrant to purchase 99 shares of common
stock at $2.67 per share for every $20,000 of outstanding
principal which are exercisable for a period of two years
subsequent to the closing of the Company's IPO. During the years
ended December 31, 1998 and 1999, the Company issued warrants to
purchase 38,089 and 19,233 shares of common stock, respectively,
which were valued (utilizing the Black-Sholes option pricing
model with the following weighted average assumptions for 1998
and 1999, respectively: risk free interest rates at 5.4 and 5.7
percent, expected dividend yield of 0 percent, volatility at 49.0
and 96.5 percent, and expected lives at 2.8 and 3.0 years,
respectively) at amounts ranging from $8.32 to $8.69 and $1.63 to
$4.99 per share, respectively, and recorded as additional
interest expense on the debt.
- 188 shares of common stock for every $20,000 of outstanding
principal, or a total of 13,781 shares of common stock which were
valued at $10.67 per share at their date of issuance in 1998.
- An additional 469 shares of common stock for every $20,000 of
outstanding principal converted into Series A convertible
preferred stock. During 1998, holders of $1,040,000 of
outstanding principal elected to convert their 1996 Notes into
208,000 shares of Series A convertible preferred stock at an
agreed upon value of $5.00 per share. In connection with this
conversion, the Company issued 24,375 shares of common stock
which were valued at $10.67 per share.
The total value of $407,000 related to the issuance of the 13,781 common
shares issued to avoid foreclosure and the 24,375 common shares issued to
induce the conversion to Series A convertible preferred stock has
F-16
<PAGE>
been recognized as an extraordinary loss from debt extinquishment in the
accompanying December 31, 1998 statement of operations.
In connection with the above mentioned conversion of the 1996 Notes into
Series A convertible preferred stock, the Company issued 13,125 shares of
common stock to the original placement agent for assisting in the
conversion. These shares were valued at $10.67 per share and have been
treated as a cost of the conversion of the 1996 Notes into Series A
convertible preferred.
In May 1999, the remaining holders of the 1996 Notes were offered the
right to convert their notes into Series B convertible preferred stock at
the rate of $3.00 per share. Holders of 1996 Notes consisting of $300,000
of outstanding principal and $58,124 of accrued interest converted into
119,374 shares of Series B convertible preferred stock.
As of December 31, 1999, the remaining 1996 Notes in the amount of
$130,000 are in default and are continuing to accrue warrants on a
monthly basis.
1997 PRIVATE DEBT AND EQUITY OFFERING
In April 1997, the Company began a private placement offering of
promissory notes (the "1997 Notes") and shares of common stock. The
offering (as amended) consisted of 180 units at $10,000 per unit, each
unit consisting of 938 shares of common stock and a $5,000 promissory
note. The 1997 Notes bear interest at 15 percent, payable quarterly, were
due in one year and are secured by the assets of the Company.
In connection with the private placement offerings, the Company agreed to
issue common stock to a placement agent (the "Merchant Banker") such that
the Merchant Banker would own 5.9 percent of the issued and outstanding
capital stock of the Company immediately preceding the filing of a
registration statement relating to an IPO of the Company's securities.
In May 1998, the Company entered into an agreement with the Merchant
Banker which eliminated its anti-dilution rights in exchange for the
issuance of 68,948 shares of common stock and the forgiveness of $50,014
in receivables from the Merchant Banker. The additional shares issued
have been reflected as a stock dividend inasmuch as no additional
services were provided by the Merchant Banker.
In September 1998, holders of the 1997 Notes were offered the right to
convert the 1997 notes and accrued interest into common stock at a rate
of $10.67 per share. Note holders consisting of $115,000 in outstanding
principal and $9,428 of accrued interest elected to convert their 1997
Notes into 11,665 shares of common stock at that time. The Company
incurred $11,082 of offering costs associated with this conversion which
was recorded as an offset to additional paid-in capital.
In May 1999, remaining holders of the 1997 Notes were offered the right
to convert the notes and accrued interest into Series B convertible
preferred stock at the rate of $3.00 per share. 1997 Note holders
consisting of $425,051 in outstanding principal and $96,882 of accrued
interest elected to convert their 1997 Notes into 173,976 shares of
Series B convertible preferred stock at that time. In addition, the
Company paid $5,000 in cash to one investor.
As of December 31, 1999, the remaining 1997 Notes in the amount of
$431,750 are in default.
1998 CONVERTIBLE 60 DAY NOTES OFFERING
In May 1998, the Company issued $561,520 of 10 percent convertible
promissory notes, with a term of sixty days. These notes were convertible
at maturity into common stock at a price of $10.67 per share. These
convertible promissory notes were secured by the assets of the Company.
In October 1998, the Company converted $561,520 of outstanding principal
and $17,632 of accrued interest into 54,296 shares of common stock. In
connection with this conversion, the Company agreed to issue 7,875 shares
of common stock as a finders fee. These shares were valued at $10.67 per
share and recorded as deferred offering costs and
F-17
<PAGE>
amortized to interest expense over the term of the notes. In addition,
the Company incurred $45,462 of offering costs associated with this
conversion which was recorded as an offset to additional paid-in capital.
1998 PROMISSORY NOTE
During 1998, the Company issued a $100,000 short-term promissory note to
an investor which was subsequently converted into 9,375 shares of common
stock at a price of $10.67 per share. In addition, this investor was
granted an additional 1,500 shares of common stock as an inducement to
convert the promissory note, which was valued at $10.67 per share and
recorded as additional interest expense in 1998.
1999 PRIVATE DEBT OFFERING
From February through May 1999, the Company offered 15 percent promissory
notes with a term of ninety days (the "1999 Notes"). Interest was payable
at maturity. Additionally, the 1999 Notes provided for the holders to
receive 37.5 shares of common stock every thirty days for each $1,000 of
principal outstanding. The Company received $350,000 from the issuance of
the 1999 Notes. The 1999 Notes are secured by the assets of the Company.
During 1999, the Company paid off $134,885 of the 1999 Notes with cash
and converted $180,000 of the 1999 Notes and 7,479 shares of accrued but
unissued common stock (which were valued at $4.00 per share) into 81,909
shares of Series B convertible preferred stock. In addition, during 1999
the Company accrued and issued 37,409 shares of common stock that were
not converted into Series B convertible preferred stock. As of December
31, 1999, $35,115 of these notes remain outstanding and are in default.
F-18
<PAGE>
Notes payable and long-term debt consists of the following at December
31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------------------- ----------------------
<S> <C> <C>
1996 Notes secured by assets of the Company, in default
as of December 31, 1998 and 1999, interest at 15
percent per annum and accruing warrants to purchase
common stock on a monthly basis (see description
above)............................................... $ 429,725 $ 130,000
1997 Notes secured by assets of the Company, in default
as of December 31, 1998 and 1999, interest of 15
percent per annum (see description above)............ 870,500 431,750
1999 Notes secured by assets of the Company, in default
as of December 31, 1999, interest at 15 percent per
annum and accruing shares of common stock on a
monthly basis (see description above)................ -- 35,115
Note payable to RSG net of discount of $35,136 and $0 as
of December 31, 1998 and 1999, respectively, secured
by assets of the Company, imputed interest at 41
percent per annum (see Note 4)....................... 1,464,864 1,555,544
Note payable to a corporation for services performed, in
default as of December 31, 1999, interest at 22
percent per annum, unsecured......................... -- 102,290
Note payable to an individual, in default as of December
31, 1998 and 1999, interest at 15 percent per annum,
unsecured............................................ 100,000 100,000
Note payable to a bank, interest at 10 percent per annum,
due in monthly installments through June 2002,
secured by vehicle................................... 13,740 10,290
Note payable to a bank, interest at 9.25 percent per
annum, due in monthly installments through April
2000, secured by a vehicle........................... 5,460 1,429
Note payable to an individual, interest at 15 percent per
annum, unsecured..................................... -- 6,062
---------------------- ----------------------
Total notes payable and long-term debt................ 2,884,289 2,372,480
Less current portion................................ (2,872,570) (1,560,458)
---------------------- ----------------------
$ 11,719 $ 812,022
====================== ======================
</TABLE>
Future maturities of notes payable and long-term debt as of December 31,
1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------------
<S> <C>
2000................................................ $ 1,560,458
2001................................................ 4,210
2002................................................ 32,043
2003................................................ 109,871
2004................................................ 163,711
Thereafter.......................................... 502,187
----------------------
$ 2,372,480
======================
</TABLE>
F-19
<PAGE>
6. NOTES PAYABLE TO STOCKHOLDERS
In March 1996, the Company's president, who is also a principal
stockholder, agreed to purchase 187,500 shares of RSI's common stock from
a stockholder for $500,000. As payment for the shares, the president
assumed a $250,000 note payable obligation to the selling stockholder,
which bore interest at 7 percent and was due on March 14, 1998, and
signed another $250,000 promissory note payable to the selling
stockholder, which bore interest at 7 percent and was due on demand. In
October 1996, the Company agreed to assume the president's rights and
obligations under the agreements and repurchase the shares as treasury
shares as per the terms of the original agreement with no additional
compensation or consideration paid to the president. In March 1998, the
Company and the stockholder agreed to rescind and to return the 187,500
shares of stock to the original stockholder. Accordingly, no loss was
recognized on this transaction.
In October 1996, in connection with the Company's acquisition of certain
patents and license rights from the Company's president, the Company
agreed to pay the president $125,000 as well as issue the president
65,625 shares of common stock. The $125,000 was originally due March 1,
1997 without interest. During 1997, 1998 and 1999, the Company paid
$41,750, $12,500 and $0, respectively, in cash of principal on this
obligation. In December, 1999, the Company's president agreed to convert
the remaining principal balance of $70,750 into 23,583 shares of Series B
preferred stock at $3.00 per share.
During the years ended December 31, 1998 and 1999, the Company's
president loaned the Company $75,000 and $130,209, respectively.
Additionally, during the year ended December 31, 1999, the Company's
chief financial officer, who is a stockholder, and another stockholder
loaned the Company $10,545 and $83,441, respectively. These loans were
evidenced by promissory notes which bore interest at 10 percent. In
addition, the note holders were also to receive 100 shares of common
stock per month for every $1,000 of principal outstanding. In connection
with these agreements, the Company accrued and issued 80,434 shares of
common stock which were valued at $3.20 per share. During September 1999,
all amounts outstanding on these notes were converted into 105,984 shares
of Series B convertible preferred stock at a rate of $3.00 per share.
7. LEASES
CAPITALIZED LEASE OBLIGATIONS
Certain equipment is leased under capital lease agreements. The following
is a summary of assets held under capital lease agreements at December
31, 1998 and 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1999
----------------- -----------------
Property and equipment................... $ 75,126 $ 103,602
Less accumulated amortization............ (29,320) (62,701)
----------------- -----------------
$ 45,806 $ 40,901
================= =================
</TABLE>
The following is a schedule of future minimum lease payments under
capital lease agreement together with the present value of the net
minimum lease payments at December 31, 1999:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------------
<S> <C>
2000.................................................. $ 35,728
2001.................................................. 35,728
2002.................................................. 27,776
-----------------
Total net minimum lease payments...................... 99,232
Less amount representing interest..................... (22,074)
-----------------
Present value of net minimum lease payments........... 77,158
Less current portion.................................. (22,061)
=================
$ 55,097
=================
</TABLE>
F-20
<PAGE>
OPERATING LEASES AS LESSOR
The Company accounts for its revenue sharing agreements as operating
leases. As of December 31, 1999, the Company had only one revenue sharing
agreement for which the customer was contractually obligated to pay
minimum monthly payments. Agreements with all other customers provide for
an allocation of revenues to the Company with no minimum monthly payment.
Accordingly, the Company is unable to estimate future amounts to be
received under these agreements.
Future minimum payments to be received under the contract that provides
for minimum monthly amounts are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
2000.................................................. $ 132,457
2001.................................................. 132,457
2002.................................................. 132,457
2003.................................................. 132,457
2004.................................................. 132,457
Thereafter............................................ 264,914
-----------------
$ 927,199
=================
</TABLE>
OPERATING LEASES AS LESSEE
The Company leases its operating facilities and certain equipment under
noncancelable operating leases. Rent expense for the years ended December
31, 1998 and 1999 was $100,098 and $115,245, respectively. As of December
31, 1999, minimum rental payments under noncancelable operating leases
were as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
2000.................................................. $ 132,886
2001.................................................. 119,836
2002.................................................. 104,030
-----------------
$ 356,752
=================
</TABLE>
8. INCOME TAXES
Company paid no federal or state income.
The significant components of the Company's deferred income tax assets as
of December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
----------------- -----------------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforwards....... $ 2,582,603 $ 3,798,062
Reserves and accrued liabilities....... 123,795 84,192
----------------- -----------------
Total deferred income tax assets.... 2,706,398 3,882,254
Valuation allowance...................... (2,661,384) (3,846,240)
----------------- -----------------
Net deferred tax asset.............. 45,014 36,014
----------------- -----------------
Deferred income tax liability:
Tax depreciation in excess of book..... (45,014) (36,014)
----------------- -----------------
Total deferred income tax liabilities (45,014) (36,014)
----------------- -----------------
Net deferred income taxes........... $ -- $ --
================= =================
</TABLE>
The amount of and ultimate realization of the deferred income tax assets
is dependent, in part, upon the tax laws in effect, the Company's future
earnings, and other future events, the effects of which cannot be
F-21
<PAGE>
determined. The Company has established a valuation allowance against its
deferred income tax assets. Management believes that, based on a number
of factors, the available objective evidence creates sufficient
uncertainty regarding the realizability of these deferred income tax
assets to warrant the valuation allowance.
The following is a reconciliation of the amount of tax benefit that would
result from applying the federal statutory rate to pretax (loss)/income
with the benefit from income taxes:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------------------
1998 1999
----------------- -----------------
<S> <C> <C>
Benefit at statutory rate (34%)............... $ (3,059,880) $ 113,739
Non-deductible stock based compensation....... 1,651,756 (1,362,278)
Other non-deductible expenses................. 177,711 68,069
Change in valuation allowance:................ 1,112,422 1,184,856
State tax benefit, net of federal tax benefit. 117,991 (4,386)
----------------- -----------------
Net Benefit from Income Taxes.............. $ -- $ --
================= =================
</TABLE>
The following summarizes the tax net operating loss carryforwards and
their respective expiration dates as of December 31, 1999:
<TABLE>
<S> <C>
2008.................................................. $ 44,043
2010.................................................. 930,194
2011.................................................. 2,188,074
2017.................................................. 820,111
2018.................................................. 3,191,461
2019.................................................. 2,846,950
-----------------
Total net operating loss carryforwards................ $ 10,020,833
=================
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
In March 1999, a vendor of the Company filed a lawsuit that alleges
breach of contract and seeks payment in the amount of approximately
$125,000 from the Company related to purchases of materials from the
vendor. The Company has responded to the lawsuit, and management believes
that the materials delivered by the vendor were defective. In addition,
the Company's costs resulting from the defective materials are in excess
of $120,000. Although the Company, after consultation with legal counsel,
believes that their defenses have merit, they are unable to predict the
outcome of this matter.
The Company is the subject of certain legal matters, which it considers
incidental to its business activities. It is the opinion of management,
after discussion with legal counsel, that the ultimate disposition of
these legal matters will not have a material impact on the consolidated
financial condition or results of operations of the Company.
EMPLOYMENT AGREEMENTS
During 1999, the Company entered into employment agreements with certain
of its officers and key employees. The agreements are for periods of 24
to 36 months with an option to extend the terms for up to an additional
12 months upon mutual agreement of the Company and the officer/employee.
Upon the successful completion of certain events (including an IPO of the
Company's common stock), the officers/employees are to receive increases
in their base salaries at percentages ranging up to 28 percent. In the
event of termination of employment without cause, the officer/employee is
entitled to cash compensation equal to their base salary for the lesser
of the remainder of their employment agreement or a period of one to
F-22
<PAGE>
twelve months (depending on the officer/employee). Additionally, upon
termination (with or without cause), the agreements allow certain of the
officers to require repurchase of the officer's common stock by the
Company at a price equal to 200 percent of its fair market value at the
date of termination. The agreements also prevent the officers/employees
from competing with the Company for up to one year from the date of
termination of their employment.
REGISTRATION RIGHTS
In connection with certain of its debt and equity offerings and the
conversion of certain debt to equity, the Company has granted
stockholders of [407,906] shares of common stock, warrants to purchase
242,550 shares of common stock and 683,333 shares of Series B convertible
preferred stock the right, subject to applicable terms and conditions, to
require the Company to register their common shares on a best efforts
basis (or equivalent common shares upon the exercise of the warrants or
conversion of the preferred stock) under the Securities Act for offer to
sell to the public. Additionally, the Company has also granted certain
stock and warrant holders the right to join in any registration of
securities of the Company (subject to certain exceptions). The Company is
obligated to pay all offering expenses related to offerings requested by
the stock and warrant holders under these agreements. The stockholders
are obligated to pay all selling expenses.
FINANCING AGREEMENT
During 1999, the Company entered into a program agreement with a finance
company to provide funding for Refreshment Centers which the Company
places with customers under revenue sharing agreements. Under the terms
of the program agreement, the finance company will fund the Company's
product costs for each Refreshment Center that has been in service for 90
days subject to the hotel meeting certain requirements. The Company is
obligated to repay the financing over seven years, with a formula-based
variable interest rate. As part of the financing, eRoom will form a new
entity, RSi SPE, Inc. RSi SPE will be a Nevada corporation as a wholly
owned subsidiary. RSi SPE will own all of the Refreshment Centers funded
by the finance company as well as the revenue sharing agreements. The
finance company will take a senior security interest in the Refreshment
Centers financed under the program agreement. As of December 31, 1999, no
Refreshment Centers have been funded under the program agreement.
10. STOCKHOLDERS EQUITY
AMENDMENT TO ARTICLES OF INCORPORATION
On February 2, 2000, with stockholder approval, the Company filed
articles of amendment to its articles of incorporation. The amended
articles of incorporation authorize the Company to issue 500,000 shares
of $0.001 par value Series A preferred stock, 2,500,000 shares of $0.001
par Series B preferred stock and 2,000,000 shares of $0.001 par value
Series C preferred stock and 20,000,000 shares of .001 par common stock.
The Company's board of directors is authorized, without stockholder
approval, to designate and determine the preferences, limitations and
relative rights granted to or imposed upon each share of preferred stock
which are not fixed by the amended articles of incorporation.
On March 29, 2000, the Company filed an amendment and restatement of the
Company's Articles of Incorporation, as amended and restated on February
2, 2000. The amended and restated articles of incorporation: (i) changed
the Company's name to "eRoom System Technologies, Inc."; (ii) increased
the Company's authorized capital stock to sixty million shares; (iii)
increased the authorized number of shares of the Company's common stock
from twenty million shares to fifty million shares; and (iv) authorized
five million shares of undesignated preferred stock at $0.001 par value.
REVERSE STOCK SPLITS
On September 28, 1999, the Company's board of directors approved a
one-for-two reverse stock split related to its outstanding common stock
and common stock options and warrants. However, in connection with their
employment agreements, officers which held 1,471,000 shares of common
stock were excluded from the
F-23
<PAGE>
effect of this reverse stock split. On March 29, 2000, the Company's
board of directors approved a three-for-four shares reverse stock
split related to its common stock and common stock options and
warrants. Additionally, in connection with the sale of the Series A
and B convertible preferred stock, the holders of Series A and B
convertible preferred stock were excluded from the effect of these
reverse stock splits. The 2000 stock split has been retroactively
reflected in the accompanying consolidated financial statements for
all periods presented.
STOCK ISSUANCES FOR SERVICES
During the year ended December 31, 1999, the Company has issued shares of
common stock to officers, key employees and outside parties for services
provided and as bonuses. The shares issued have been valued by the
Company's Board of Directors at estimated fair values based on other
issuances of shares for cash and on the terms of related transactions.
During 1999, the Company issued 1,864 shares of its common stock to
certain officers and key employees and recorded $5,965 of related
compensation expense, respectively. The shares issued in 1999 were valued
at $3.20 per share.
1997 STOCK OPTION EXERCISE
During the year ended December 31, 1997, certain option and warrant
holders exercised options and warrants to purchase 1,733,500 shares of
common stock in exchange for notes receivable of $3,799,250. The notes
were due on demand, bore interest at 7 percent per annum and the
principal and accrued interest could be paid by surrendering shares of
common stock to the Company. During the years ended December 31, 1998 and
1999, the Company accrued $274,691 and $235,951, respectively, of
interest related to these notes receivable.
The notes issued in connection with the exercise of these options were
only partial recourse to the stockholders. In accordance with EITF Issue
95-16, "Accounting for Stock Compensation Arrangements with Employer Loan
Features Under APB No. 25," these stock options were accounted for as
variable awards. Accordingly, the Company has estimated the compensation
expense related to these awards at each reporting date up through the
settlement of the notes receivable. The compensation expense related to
employees has been measured using the intrinsic value of the option. The
compensation expense related to non-employees has been measured using the
Black-Scholes option pricing model at each reporting date with the
following assumptions for 1998 and 1999, respectively: risk free rates at
5.4 and 6.3 percent, expected dividend yield of 0 percent, volatility at
58.2 and 100.6 percent, and expected lives at 3.5 and 2.5 years,
respectively. During the year ended December 31, 1998, the Company
recognized compensation expense of $4,854,150 related to these variable
awards. As a result of a decline in the value of the Company's common
stock during the year ended December 31, 1999, the Company reversed
compensation expense totaling $4,006,700 related to these awards.
During the year ended December 31, 1999, the Company demanded payment on
notes receivable with principal balances totaling $3,143,000. Holders of
1,471,000 shares of common stock with a principal obligation totaling
$2,574,250 and accrued interest of $366,319 surrendered their shares to
the Company as satisfaction of their obligation. In connection with their
employment/consulting agreements these stockholders had been exempted
from the effects of the reverse stock split. However, as of December 31,
1999, a holder of 121,875 shares of common stock with a principal balance
of $568,750 and accrued interest of $50,938 had filed for bankruptcy
protection. As a result, the Company is currently negotiating with the
bankruptcy trustee for the return of the shares. However, the fair value
of the shares is less than the principal and accrued interest on the note
receivable. Accordingly, as of December 31, 1999 the Company has recorded
a reserve of $229,688 against the note receivable to reflect it at the
fair value of the underlying collateral.
As of December 31, 1999, a note receivable from the exercise of 140,625
stock options with a principal balance of $656,250 and accrued interest
of $93,385 remained outstanding for which the Company had not yet
demanded repayment. As a result of the decline in the value of the
underlying collateral and because the Company does not believe it will
receive payment beyond the return of the underlying common stock, the
Company recorded a reserve of $299,635 to reflect the note receivable at
the fair value of the underlying collateral.
F-24
<PAGE>
1998 STOCK TRANSACTIONS
In January 1998, the Company sold 35,532 shares of common stock in a
private placement at $10.67 per share. The Company received cash proceeds
of $335,042, net of $43,958 in offering costs. The placement agent of the
offering received a cash commission of 12.5 percent and warrants to
purchase 4,264 shares of common stock, exercisable at $12.80 per share
which are exercisable for a period of three years. The Company has valued
these warrants at $4.31 per share using the Black-Scholes option pricing
model with the following assumptions: risk free rate of 5.4 percent,
expected dividend yield of 0 percent, volatility of 58.2 percent and an
expected life of 3.3 years.
During the year ended December 31, 1998, the Company sold an additional
5,156 shares of common stock to an investor at $10.67 per share
1998 SERIES A CONVERTIBLE PREFERRED STOCK OFFERING
In January 1998, the Company issued 360,000 shares of Series A
convertible preferred stock at a price of $5.00 per share. The Company
received $600,275 in net cash proceeds (net of offering costs of
$159,725) and issued 152,000 shares of Series A convertible preferred
stock. In addition, the Company issued 208,000 shares of Series A
convertible preferred stock relating to the conversion of $1,040,000 of
1996 Notes. The placement agent received a cash commission of 13 percent,
due diligence and non-accountable expense allowances (for a total of
$149,843), 13,125 shares of common stock (valued at $10.67 per share) and
warrants to purchase 6,840 shares of common stock exercisable at $16.00
per share which are exercisable for a period of two years subsequent to
the Company's IPO. The Company has valued these warrants at $2.56 per
share using a Black-Sholes option pricing model with the following
assumptions: risk free rate of 5.6 percent, expected dividend yield of 0
percent, volatility of 58.2 and an expected life of 2.1 years.
The Series A convertible preferred stock is automatically converted into
shares of common stock upon the consummation of an IPO on a one-to-one
basis if the IPO price is at lease $10.00 per share. If the initial
public offering price is less than $10.00 per share, the conversion rate
for the shares of Series A convertible preferred stock will be $10.00
divided by the IPO price. On November 14, 1998, holders of Series A
convertible preferred stock commenced cumulating an 8% annual dividend.
The annual dividend requirement applicable to Series A preferred shares
outstanding at December 31, 1999 is $144,000, or $0.40 per share. Due to
certain provisions of the Series A convertible preferred stock, the
Company's one-for-two reverse stock split declared on September 28, 1999
did not affect the number of shares of Series A convertible preferred
stock outstanding. No dividends have been paid to date to holders of
Series A convertible preferred stock. As of December 31, 1998 and 1999,
holders of Series A convertible preferred stock were owed dividends of
$18,542 and $162,542, respectively.
In accordance with EITF 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios" the Company will record (upon conversion of the Series A
convertible preferred stock) a dividend to the Series A convertible
preferred stockholders of $1,800,000. This dividend represents the
contingent beneficial conversion feature of the Series A convertible
preferred stock which accrues to the Series A convertible preferred
stockholders at the date of conversion.
In the event of a liquidation, dissolution or winding up of eRoom,
holders of the Series A preferred stock will be entitled to receive, out
of legally available assets, a liquidation preference of $10.00 per
share, plus an amount equal to any unpaid dividends to the payment date,
before any payment or distribution is made to holders of common stock or
any series or class of stock there after issued that rank junior as to
the liquidation rights of the Series A preferred stock. The holders of
the Series A shares may not note on any matter, excluding matters
affecting the rights of such stockholders or as required by law. In
connection with such note, each share of Series A preferred stock will be
entitled to one note.
F-25
<PAGE>
1999 SERIES B CONVERTIBLE PREFERRED STOCK OFFERING
In May through September 1999, the Company issued 2,081,680 shares of
Series B convertible preferred stock at a price of $3.00 per share. The
Company received $3,584,256 in net cash proceeds (net of cash offering
costs of $480,885) and issued 1,355,047 shares of Series B convertible
preferred stock. In addition, the Company issued 726,633 shares of Series
B convertible preferred stock relating to the conversion of $2,265,599 of
promissory notes and unpaid salaries of certain officers and as part of
the settlement with RSG Investments (Note 4) The placement agent received
a cash commission of 9 percent on shares which they placed and a
non-refundable expense allowance of 2.5 percent.
Effective January 1, 2000 and in connection with the Series B convertible
preferred stock offering, the Company agreed to pay an individual a
finder's fee of $51,250 plus interest at 10 percent, which is payable
from proceeds of the Company's IPO and to issue an option to purchase
1,125 shares of common stock at an exercise price of $4.80 per share. In
the event the Company does not complete an IPO by June 15, 2000, the
Company is obligated to issue additional options to purchase 1,125 shares
of common stock per month until September 30, 2000, at which time an
additional 1,125 options are to be issued and the finder's fee and
accrued interest are due and payable in full. The Company has accounted
for the finders fee and the fair value of the initial 1,125 options as a
cost of the Series B convertible preferred stock offering.
Pursuant to the terms of the Series B convertible preferred stock, the
shares are automatically converted into shares of common stock upon
the consummation of an IPO or a business combination where controlling
interest of the Company is acquired. Before the modification as
explained below, the conversion was at the lower of (i) $3.00 per
share or (ii) 50 percent of the IPO price per share. On April 12,
2000, the certificate of designation for the Series B preferred stock
was amended to modify the conversion rate to be determined by dividing
$3.00 by 45 percent of the IPO price per share. In the event the
Company does not close its IPO by September 28, 2000, each holder of
Series B preferred stock shall have the option to convert their Series
B stock into the Company's common stock or remain a Series B preferred
stockholder after that date. Upon election, each Series B share
converts into 1.5 shares of common stock. The holders of the Series B
preferred stock are entitled to an annual cumulative dividend of six
percent, payable in common stock. The annual dividend requirement
applicable to Series B convertible preferred stock outstanding at
December 31, 1999 is $374,702, or $0.18 per share. As of December 31,
1999, the Company had accrued common stock dividends of 35,567 shares
with a value of $141,859 related to the Series B convertible preferred
stock.
In accordance with EITF 98-5, "Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios," the Company determined that the holders of the
Series B convertible preferred stock had received a beneficial
conversion feature at the date of issuance. This beneficial conversion
feature has been valued at $1,249,008 and is being accrued as a
dividend between the date of issuance of the Series B convertible
preferred stock and September 28, 2000, the date which the Series B
convertible preferred stockholders have the right to convert their
shares. By modifiying the terms of the beneficial conversion feature,
when the value of the common stock was $3.20 per share, the beneficial
conversion feature was increased by $2,498,016. The increase to the
beneficial conversion feature is being accrued as a dividend from
April 12, 2000 through September 28, 2000. In the event of a
successful IPO prior to that date, the remaining unaccrued beneficial
conversion feature will be accrued and recognized at the effective
date of the IPO. During the year ended December 31, 1999, the Company
recorded a dividend of $321,370 to the Series B convertible preferred
stockholders related to the beneficial conversion feature.
In the event of any liquidations, dissolution or winding up of the
Company, holders of Series B convertible preferred stock will be
entitled to receive, out of legally available assets, a liquidation
preference of $10.00 per share, plus an amount equal to any unpaid
dividends to the payment date, before any payment or distribution is
made to holders of common stock or any series or class there after
issued that ranks junior to the liquidation rights of the Series B
convertible preferred stock. The holders of Series B convertible
preferred stock may not vote on any matter, excluding matters
affecting the rights of such stockholders or as required by law. In
connection with any such vote, each outstanding share of Series B
convertible preferred
F-26
<PAGE>
stock with be entitled to one vote. In addition, if the Company has
not completed an IPO by September 28, 2000, holders of Series B
convertible preferred stock will be accorded voting rights. In such
event, each share of Series B convertible preferred stock will be
entitled to one vote.
1999 COMMON STOCK ISSUANCE
On May 30, 1999, the Company sold 198,750 shares of common stock to an
entity controlled by the Company's president in exchange for a promissory
note in the amount of $1,590,000. The purpose of the stock sale was to
assist the Company in complying with certain stock pledge requirements
set forth in the Equipment Agreement with RSG (see Note 4). On September
28, 1999 as a result of the Transfer Agreement with RSG, the 198,750
shares of common stock were returned to the Company in exchange for the
cancellation of the promissory note. The shares have been reflected as
issued and retired in the accompanying statement of stockholders' deficit
for the year ended 1999.
11. STOCK OPTIONS AND WARRANTS
STOCK-BASED COMPENSATION
The Company accounts for its stock options issued to directors, officers
and employees under Accounting Principles Board Opinion No. 25 and
related interpretations ("APB 25"). Under APB 25, compensation expense is
recognized if an option's exercise price on the measurement date is below
the fair value of the Company's common stock. The Company accounts for
options and warrants issued to non-employees in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation" (SFAS 123) which requires
these options and warrants be accounted for at their fair value.
NON EMPLOYEE GRANTS
During the years ended December 31, 1998 and 1999 the Company issued
options to purchase 938 and 63,711 shares of common stock, respectively.
These options were valued in accordance with SFAS 123 (utilizing the
Black-Scholes option pricing model with the following weighted average
assumptions for 1998 and 1999, respectively: risk free interest rate of
5.6 and 6.2, expected dividend yield of 0 percent, volatility of 58.2 and
100.6 percent expected lives of 3.2 and 2.6, respectively) at amounts
ranging from $1.58 and $1.37 to $1.63 per share, respectively.
EMPLOYEE GRANTS
During 1998 and 1999 the Company granted options to purchase 9,000 and
269,900 shares of common stock, respectively. The exercise price ranging
from $11.33 and $4.80 to $8.80 per share, respectively. There was no
intrinsic value relating to these options and vested upon grant.
SFAS 123 requires pro forma information regarding net income (loss) as if
the Company had accounted for its stock options granted to employees
subsequent to December 31, 1994 under the minimum fair value method of
the statement. The minimum fair value of the stock options was estimated
at the grant date by the Company using the Black-Scholes option pricing
model. The following weighted average assumptions were used in the
Black-Scholes model for 1998 and 1999, respectively: weighted-average
risk-free interest rate of 5.5 and 6.3 percent, a weighted average
dividend yield of 0 percent, volatility of 58.24 and 100.6 percent, and a
weighted-average expected lives of 3.8 and 2.7 years, respectively.
Following are the pro forma disclosures and the related impact on the net
income (losses) for the years ended December 31, 1998 and 1999:
F-27
<PAGE>
<TABLE>
<CAPTION>
1998 1999
----------------- -----------------
<S> <C> <C>
Net loss attributable to common
stockholders as reported.............. $ (9,018,188) $ (272,743)
Net loss attributable to common
stockholders pro forma................ (9,063,746) (719,093)
Basic and diluted net loss per common
share as reported..................... (2.98) (0.09)
Basic and diluted net loss per common
share pro forma....................... (2.99) (0.22)
</TABLE>
Due to the nature and timing of option grants, the resulting pro forma
compensation cost may not be indicative of future years.
OUTSTANDING STOCK OPTIONS AND WARRANTS
The Company has from time to time granted stock options and warrants to
employees, directors, consultants and in connection with financing
transactions (see Notes 4, 5 and 10). A summary of stock option and
warrant activity for the years ended December 31, 1998 and 1999 is as
follows:
<TABLE>
<CAPTION>
Price Weighted Average
Options and Warrants Range Exercise Price
------------------------ --------------- ---------------------
<S> <C> <C> <C>
Balance, December 31, 1997.......... 454,575 2.67-6.00 3.19
Granted.......................... 143,455 2.67-16.00 10.33
------------------------
Balance, December 31, 1998.......... 598,030 2.67-16.00 5.00
Granted.......................... 362,228 1.33-9.60 5.56
Forfeited........................ (93,750) 12.80 12.80
------------------------
Balance, December 31, 1999.......... 866,508 $2.67-16.00 $ 4.39
========================
</TABLE>
A summary of stock option and warrant grants with exercise prices less
than, equal to or greater than the estimated market value on the date of
grant during the years ended December 31, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Weighted Average
Weighted Fair Value
Options and Warrants Average of Options
Granted Exercise Price and Warrants
------------------------ --------------- ---------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Grants with exercise price less
than estimated market value..... 105,416 2.67 8.46
Grants with exercise price greater
than estimated market value..... 38,039 13.78 4.88
YEAR ENDED DECEMBER 31, 1999:
Grants with exercise price less
than estimated market value..... 19,233 2.40 2.20
Grants with exercise price greater
than estimated market value..... 342,995 5.66 1.82
</TABLE>
F-28
<PAGE>
A summary of the options and warrants outstanding and exercisable as of
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Options and Warrants Outstanding Options and Warrants Exercisable
------------------------------------------------------ -----------------------------------
Options and Weighted Average Weighted Options and Weighted
Range of Exercise Warrants Remaining Average Warrants Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------------------- ----------------- ------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 1.33-2.67 398,304 2.5 years $ 2.65 398,304 $ 2.65
2.68-5.33 366,914 2.6 years 4.76 366,914 4.76
5.34-16.00 101,290 2.6 years 9.72 101,290 9.72
----------------- -----------------
866,508 866,508
================= =================
</TABLE>
12. SEGMENT INFORMATION
In June 1998, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 establishes
disclosures related to components of a company for which separate
financial information is available and evaluated regularly by a company's
chief operating decision makers in deciding how to allocate resources and
in assessing performance. It also requires segment disclosures about
products and services as well as geographic areas. The Company has
determined that it did not have any separately reportable operating
segments as of December 31, 1998 and 1999. However, the Company does sell
Refreshment Centers in geographic locations outside of the United States.
Revenues attributed to individual countries based on the location of
sales to unaffiliated customers for the years ended December 31, 1998 and
1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
----------------- -----------------
<S> <C> <C>
Revenue:
United States........................... $ 769,062 $ 592,409
Other Countries.......................... 242,400 --
----------------- -----------------
Total Revenue......................... $ 1,011,462 $ 592,409
================= =================
</TABLE>
13. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company's historical revenues and receivables have been derived
solely from the lodging industry. The Company offers credit terms on the
sale of its Refreshment Centers and in connection with its revenue
sharing contracts. The Company performs ongoing credit evaluations of its
customers' financial condition and does not require collateral from its
customers. The Company maintains an allowance for uncollectable accounts
receivable based upon the expected collectibility of all accounts
receivable.
During the year ended December 31, 1998, revenues from three customers
accounted for 40.8, 25.1 and 24 percent of total revenues.
During the year ended December 31, 1999, revenues from two customers
accounted for 18.6 and 16.0 percent of total revenues. No other customer
accounted for more than 10 percent of total revenues in any year
presented.
F-29
<PAGE>
14. SUBSEQUENT EVENTS
2000 STOCK OPTION PLAN
On February 3, 2000, the Board of Directors adopted, and on March 29,
2000, a majority of the shareholders' approved the creation of the 2000
Stock Option Plan ("2000 Plan") with 2,000,000 shares of common stock
reserved for issuance thereunder. The plan provides both the direct award
or sale of shares and for the grant of options to purchase shares. A
committee, designated by the board of directors, will administer the plan
and has the discretion to determine the employees, directors, independent
contractors and advisors who will receive awards, the type of awards
(stock, incentive stock options or non-qualified stock options) to be
granted, the term, vesting and exercise prices. The exercise price for
the options may be paid in cash, in shares of the Company's common stock
valued at fair market value on the exercise date or through a same-day
sale program without any cash outlay by the optionee. In the event of a
change in control (as defined), all restrictions on all awards or sales
of shares issued under the plan will lapse and vesting on all unexercised
options will accelerate to the date of the change in control.
In February and March 2000, the Company issued options for the
purchase of 1,427,250 shares of common stock to certain officers and
employees of the Company pursuant to the 2000 Plan. With the exception
of options to purchase 80,333 shares of common stock, these options
vested immediately. The exercise prices range from $4.00 to $9.60
per share. The options are exercisable through the third anniversary
of the closing of this offering.
NOTE PAYABLE TO STOCKHOLDER
On February 15, 2000, the Company received a $500,000 loan from a
company, wholly owned by a stockholder and nominee to the board of
directors. The loan is evidenced by a promissory note, bears interest at
the rate of 10 percent per annum, matures on May 31, 2000 and is secured
by the assets of the Company. In addition, the Company issued a warrant
for the purchase of 18,750 shares of common stock, which is exercisable
at $4.80 per share for two years subsequent to the issuance of the
promissory note.
CANCELLATION OF NOTE RECEIVABLE
During the first quarter of 2000, the Company cancelled a note
receivable from a stockholder which was used to purchase shares of
common stock. The value of the note receivable was $656,250. As
consideration for the cancellation of the note receivable, 140,625
shares of common stock were returned to the Company by the stockholder.
2000 DEBT AND EQUITY OFFERING
During March and April 2000, the Company issued $237,500 of 7%
secured, subordinated, convertible promissory notes, 219,227 shares of
7% Series C convertible preferred stock and warrants to purchase
42,500 shares of common stock at $6.60 per share in a private
placement offering. The Company received $869,250 in net proceeds (net
of offering costs of $80,750). The gross proceeds consisted of $650,000
in cash and $300,000 in irrevocable subscription agreements. The 7%
Series C convertible preferred stock was issued at $3.25 per share and
will be automatically converted into common stock upon the close of an
initial public offering at the rate determined by $3.25 divided by 55
percent of the IPO price per share, provided the IPO closes by January
31, 2001, otherwise at $3.30 per share. The promissory notes bear
interest at 7 percent per annum, payable semi-annually and mature on
December 31, 2001. The notes may be converted at the option of the
holders into common stock at 85 percent of the IPO price per share,
commencing 30 days following the closing of the IPO.
The Series C convertible preferred stock shall automatically convert
into common stock upon the close of the IPO at the rate of $3.25 divided
by 55% of the IPO price per share provided the IPO closes by January 31,
2001, otherwise at $3.30 per share. In the event of any liquidation,
holders of the Series C convertible preferred stock will be entitled to
receive, out of legally available assets, a liquidation preference of
$10.00 per share plus an amount equal to any unpaid dividends to the
payment date before any payment or distribution is made to the holders
of common stock or any series or class of the Company's capital stock
that ranks junior to the liquidation rights of the Series C convertible
preferred stock. The holders of the Series C convertible preferred stock
may not vote on any matter, excluding matters affecting the rights of
such stockholders or as required by law. In connection with any such
vote, each outstanding share of Series C convertible preferred stock
shall be entitled to one vote.
The proceeds from the offering were allocated to the financial
instruments issued based upon their relative fair values and resulted
in allocating $185,371 to the promissory notes before offering costs
of $15,757, $25,442 to the favorable debt conversion feature, $508,844
to the 7% Series C convertible preferred stock and $165,349 to the
warrants. Based upon the estimated market value of the common stock of
$3.20 per share at the date of the offering, there was no beneficial
conversion feature associated with the 7% Series C convertible
preferred stock.
While the allocated value of the warrants was less than their fair value
of $231,527, the fair value was measured using the Black-Scholes option
pricing model with the following assumptions: risk free interest rate of
5.0 percent, expected dividend yield of 0 percent, volatility of 100
percent, and expected lives of 3.25 years. The debt issuance costs will
be amortized through December 31, 2001, the discount on the promissory
notes of $52,129 will be amortized as interest expense through December
31, 2001 and the discount on the 7% Series C convertible preferred stock
of $156,386 will be recognized as Series C preferred dividends
F-30
<PAGE>
through January 1, 2001; however, the respective unamortized balances
thereof will be recognized as interest expense and Series C preferred
dividends on the date of the IPO.
ADVERTISING AND MARKETING LETTER OF AGREEMENT
On March 24, 2000, the Company entered into a letter of agreement with an
advertising agency. Under the terms of the agreement, the advertising
agency is to assist the Company in the development and implementation of
the Company's creative design related to its advertising, marketing and
promotion. The agreement lasts for a term of one year and provides for
the agency to be compensated as follows: months one through four - the
Company is to issue the agency a warrant to purchase 125,000 shares of
common stock at $4.80 per share, and months five through twelve - the
Company is to pay the agency $43,687 per month in cash. In addition, the
Company also agreed to pay all outside expenses incurred by the agency on
behalf of the Company which is estimated to be $450,000.
AMENDMENT TO SERIES B CONVERTIBLE PREFERRED STOCK DESIGNATION
As discussed further in Note 10, the certificate of designation for the
Series B convertible preferred stock was amended on April 12, 2000
to modify the conversion rate to $3.00 divided by 45 percent of the IPO
price per share.
2000 BRIDGE LOAN
On April 13, 2000, the Company issued $1,500,000 of 9% secured,
subordinated promissory note and 200,000 shares of common stock in
irrevocable subscription agreements in a private placement offering. The
Company received $1,472,500 (net of offering costs of $27,500) in net
cash proceeds. The promissory note bears interest at nine percent per
annum, payable semi-annually and mature on the earlier of the closing
of the IPO or October 11, 2000.
The proceeds from the offering were allocated to the financial
instruments issued based upon their relative fair values and resulted in
allocating $1,051,402 to the promissory note before offering costs of
$19,276 and $440,374 to the commons stock.
OTHER SUBSEQUENT EVENTS (UNAUDITED)
On March 31, 2000, the Company issued 31,225 shares of common stock to
holders of the Series B convertible preferred stock. The shares were
issued as a dividend on the preferred shares and were valued at
$93,676 or $3.00 per share. During the first quarter of 2000, the
Company also issued 1,365 shares of common stock to an employee who
loaned money to the Company. Interest on the loan accrued at 10% per
annum. The shares were issued as a payment of interest and the value
of the shares issued was $4,368 or $3.20 per share. Additionally, the
Company issued 7,991 shares of common stock to the holders of the
1999 Private Debt offering who are entitled to receive shares for the
payment of interest. The value of the shares issued as an interest
payment was $25,571 or $3.20 per share.
During the first quarter of 2000, the Company cancelled a note
receivable from a stockholder which was used to purchase shares of
common stock. The value of the note receivable was $656,250. As
consideration for the cancellation of the note receivable, 140,625
shares of common stock were returned to the Company by the stockholder
and retired.
During 2000, the Company issued warrants to purchase 12,807 shares of
common stock to holders of notes payable.
F-31
<PAGE>
================================================================================
No dealer, salesperson or other person
is authorized to give any information or to
represent anything not contained in this
prospectus. You must not rely on any
unauthorized information or representations.
This prospectus is an offer to sell only the
shares offered hereby, but only under
circumstances and in jurisdictions where it is
lawful to do so. The information contained in
this prospectus is current only as of its date.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................2
Risk Factors......................................6
Special Note Regarding Forward-Looking
Information....................................13
Use of Proceeds..................................14
Dividend Policy..................................14
Capitalization...................................15
Dilution.........................................16
Selected Financial Data..........................17
Management's Discussion and Analysis
of Financial Condition and Results of
Operation......................................19
Business.........................................28
Management.......................................38
Certain Relationships and Related
Transactions...................................43
Principal Stockholders...........................45
Description of Capital Stock.....................47
Shares Eligible for Future Sale..................52
Underwriting.....................................54
Legal Matters....................................57
Experts..........................................57
Change in Accountants............................57
Available Information............................57
Index to Consolidated Financial
Statements....................................F-1
</TABLE>
-----------------
Through and including _________, 2000,
all dealers effecting transactions in these
securities, whether or not participating in
this offering, may be required to deliver a
prospectus. This is in addition to a dealer's
obligation to deliver a prospectus when acting
as an underwriter and with respect to an unsold
allotment or subscription.
================================================================================
================================================================================
1,800,000 Shares
eROOM SYSTEM TECHNOLOGIES, INC.
Common Stock
[INSERT LOGO]
DONALD & CO. SECURITIES INC.
MONNESS, CRESPI, HARDT & CO., INC.
================================================================================
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 78.7502 and 78.751 of the Nevada Revised Statutes provides
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act. Article XII of our amended and restated
articles of incorporation (Exhibit 3.01 hereto) provides for indemnification
of our directors, officers, employees and other agents to the extent and
under the circumstances permitted by Sections 78.7502 and 78.751 of the
Nevada Revised Statutes.
In addition to the indemnification of officers and directors under
the Nevada Revised Statutes, we entered into an Indemnification Agreement on
August 17, 1999 with Dr. Alan C. Ashton, a director designee. Pursuant to
this indemnification agreement, we agreed to hold harmless and indemnify
Dr. Ashton against any and all expenses incurred by him as a result of his
position as a director of eRoom. In addition, we agreed to advance expenses
incurred by Dr. Ashton upon receipt of a written request for such advancement
containing an unsecured undertaking by Dr. Ashton to repay such amounts to
the extent that Dr. Ashton held to not be entitled to indemnification from
eRoom. The advancement of expenses specifically excludes amounts for
judgments, penalties, fines and settlements. Dr. Ashton possesses the right
to indemnification if, in civil proceedings, he acted in good faith and in a
manner that he reasonably believed to be in or not opposed to the best
interests of eRoom, and, in criminal proceedings, he had no reasonable cause
to believe that his conduct was unlawful. In addition, eRoom may elect to not
indemnify Dr. Ashton if either a majority of the directors not involved in
the relevant proceeding or independent legal counsel, in a written opinion,
determine that Ashton has not met the relevant standards for indemnification.
On September 28, 1999, we entered into an indemnification agreement
with Donnelly Prehn which indemnifies Mr. Prehn for actions to be taken by
him as a director on behalf of RSi BRE. Pursuant to this indemnification
agreement, eRoom and RSi BRE, jointly and severally, agreed to hold harmless
and indemnify Mr. Prehn against any and all expenses incurred by him as a
result of his position as a director of eRoom. In addition, we agreed to
advance expenses incurred by Mr. Prehn upon receipt of a written request for
such advancement containing an unsecured undertaking by Mr. Prehn to repay
such amounts to the extent that Mr. Prehn held to not be entitled to
indemnification from eRoom. Mr. Prehn's rights to indemnification are only
available if damages have not already been paid directly to Mr. Prehn by an
insurance carrier maintained by either eRoom or RSi BRE. Mr. Prehn is not
entitled to indemnification if he is adjudged by a court of competent
jurisdiction to have engaged in intentional misconduct or a knowing violation
of the law, if he received an improper personal benefit, or if a court of
competent jurisdiction renders a final decisions that such indemnification is
unlawful.
The Underwriting Agreement (Exhibit 1.01 hereto) provides for
indemnification by ourselves, our underwriters and the directors and officers
of the underwriters, for certain liabilities, including liabilities arising
under the Securities Act, and affords certain rights of contribution with
respect thereto.
Even though indemnification for liabilities arising under the
Securities Act may be provided to certain directors and officers pursuant to
the foregoing provisions, we have been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Act and is therefore unenforceable.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Registrant in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee $ 5,465
NASD filing fee 2,120
----------
Nasdaq Small Cap listing fee *
----------
Printing and engraving costs 50,000
Legal fees and expenses 260,000
Accounting fees and expenses 420,000
Blue Sky fees and expenses 35,000
Transfer Agent and Registrar fees *
----------
Miscellaneous expenses *
--------------------------------------------- ----------
TOTAL $ *
----------
</TABLE>
- --------------
* To be supplied by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
From our incorporation through April 2000, we have granted or issued
and sold the following unregistered securities:
(1) During the period July 1996 through March 1997, we
received $1,470,000 through a private placement, or 1996 Notes
Offering, of 12% Secured Promissory Notes, or 1996 Notes, underwritten
on a best-efforts basis by Capitol Bay Securities, or CBS. The 1996
Notes were issued in $20,000 denominations, were secured by our assets
and had a term of one year. In addition, each 1996 Note was accompanied
by a warrant to purchase 3,300 shares of common stock, exercisable at
$2.67 per share, for a total of warrants to purchase 242,550 shares of
common stock. CBS received a cash commission of 12% on all 1996 Notes
sold. In addition, CBS and its registered representatives were issued
warrants to purchase 86,250 shares of common stock, exercisable at
$2.67 per share, for serving as placement agent. 1996 Notes in the
principal amount of $75,000 were repaid in the summer of 1997. As of
January 1998, most of the outstanding 1996 Notes were in default. To
avoid foreclosure on our assets by the holders of 1996 Notes, we agreed
to issue each of the holders of 1996 Notes the following: (i) on a
monthly basis commencing on the maturity date of each 1996 Note and
continuing until the date of payoff or conversion into equity
securities, a warrant to purchase 99 shares of common stock,
exercisable at $2.67 per share, for every $20,000 of outstanding
principal, or warrants to purchase 61,629 shares of common stock as of
March 31, 2000, collectively; (ii) 188 shares of common stock for every
$20,000 of outstanding principal, or a total of 13,781 shares of common
stock; and (iii) an additional 469 shares of common stock for every
$20,000 of outstanding principal converted into Series A convertible
preferred stock. Holders of 1996 Notes consisting of $1,040,000 in
outstanding principal elected to convert their 1996 Notes into 208,000
shares of Series A convertible preferred stock. In addition, CBS was
issued 13,125 shares of common stock for assisting in the conversion of
1996 Notes into Series A convertible preferred stock. In May 1999, the
remaining holders of 1996 Notes were offered the right to convert into
Series B convertible preferred stock at the rate of $3.00 per share.
Holders of 1996 Notes consisting of $300,000 in outstanding principal
and $58,122 of accrued interest converted into 119,374 shares of Series
B convertible preferred stock. As of March 31, 2000, 1996 Notes
outstanding consist of $130,000 in principal and $38,959 of accrued
interest. All of the outstanding 1996 Notes are in default, and are
accruing, collectively, warrants to purchase 1,287 shares of common
II-2
<PAGE>
stock per month until paid in full. We intend to pay off the 1996 Notes
with the proceeds realized from this offering.
(2) On April 14, 1997, we commenced a private placement of up
to $1,800,000 of units, or the 1997 Units Offering, consisting of
promissory notes and common stock, underwritten on a best-efforts basis
by Spectrum Securities, Inc., or Spectrum. Spectrum had an
over-allotment option of 15% or $270,000. We offered 180 units at price
of $10,000 per unit, or 1997 Units. Each 1997 Unit consisted of 938
shares of common stock and a $5,000 15% secured promissory note, or
1997 Note. We received cash subscriptions of $1,986,000 from the 1997
Units Offering and issued 372,375 shares of common stock and 1997 Notes
in the aggregate principal amount of $993,000. Spectrum received a cash
commission of 15% and 24,018 shares of common stock for serving as
placement agent. In addition, Pacific Acquisition Group II, LLC was
issued 139,846 shares of common stock for serving as our merchant
banker. In September 1998, holders of 1997 Notes were offered the right
to convert their 1997 Notes and accrued interest into common stock at
the rate of $10.67 per share. 1997 Note holders consisting of $115,000
in outstanding principal, plus $9,419 of accrued interest, converted
into 11,665 shares of common stock. In May 1999, holders of 1997 Notes
were offered the right to convert their 1997 Notes and accrued interest
into Series B convertible preferred stock at the rate of $3.00 per
share. Holders of 1997 Notes consisting of $425,051 in outstanding
principal, plus accrued interest, converted into 175,562 shares of
Series B convertible preferred stock. As of March 31, 2000, 1997 Notes
outstanding consisted of $431,750 in principal and $159,480 of accrued
interest. All of the outstanding 1997 Notes are in default. We intend
to pay off the 1997 Notes from the net proceeds of this offering.
(3) In May 1997, we received a loan in the original principal
amount of $100,000 from Frank Lyons. To evidence the transaction, we
issued a promissory note bearing an interest rate of 15% per annum and
7,125 shares of common stock to Mr. Lyons. We paid a cash finder's fee
of 15% on the transaction. The note is currently outstanding and in
default with $30,417 in accrued interest as of March 31, 2000. We
intend to repay the note and accrued interest from the net proceeds of
this offering.
(4) On January 9, 1998, we commenced a private placement, or
Series A convertible preferred stock offering, of up to 1,200,000
shares of Series A convertible preferred stock, or Series A convertible
preferred stock, at a price of $5.00 per share, underwritten on a
best-efforts basis by CBS. We received cash subscriptions of $760,000,
and issued 152,000 shares of Series A convertible preferred stock. In
addition, we issued 208,000 shares of Series A convertible preferred
stock relating to the conversion of $1,040,000 of 1996 Notes. CBS
received 13% in the form of a commission, due diligence and
non-accountable expense allowances, and warrants to purchase 6,840
shares of common stock exercisable at $16.00 per share for serving as
placement agent. Pursuant to the terms of the Series A convertible
preferred stock, the shares are automatically converted into shares of
common stock upon the closing of an initial public offering on a
one-to-one basis if the initial public offering price is at least
$10.00 per share. If the initial public offering price is less than
$10.00 per share, the conversion rate will be $10.00 divided by the
initial public offering price. On the six-month anniversary of the
close of the Series A convertible preferred stock offering, or November
14, 1998, holders of Series A convertible preferred stock started to
accrue an 8% annual dividend, payable in the form of cash. The reverse
stock split did not affect the number of shares of Series A convertible
preferred stock outstanding. No dividends have been paid to date to
holders of Series A convertible preferred stock. As of March 31, 2000,
holders of Series A convertible preferred stock were owed dividends of
$198,444. We intend to pay such dividends from the proceeds of this
offering.
(5) On January 16, 1998, we commenced a private placement, or
the 1998 Common Stock Offering, of up to 60,938 shares of common stock,
at a price of $10.67 per share. The 1998 Common Stock Offering was
underwritten on a best-efforts basis by Spectrum. We received cash
subscriptions of $379,000, and issued 35,531 shares of common stock.
Spectrum received a cash commission of 12.5% and warrants to purchase
4,264 shares of common stock, exercisable at $12.80 per share, for
serving as placement agent.
II-3
<PAGE>
(6) In January 1998, we issued 13,781 shares of common stock
to holders of the 1996 Notes, at a rate of 188 shares of common stock
per $20,000 in outstanding principal, to prevent the foreclosure of our
assets by holders of the 1996 Notes.
(7) In April 1998, we issued a $100,000 short-term promissory
note to an investor which was subsequently converted into 9,375 shares
of common stock at a price of $10.67 per share. In addition, this
investor was granted an additional 1,500 shares of common stock as an
inducement to convert the promissory note, which was valued at $10.67
per share and recorded as additional interest expense in 1998.
(8) In May 1998, we offered 10% unsecured promissory notes, or
the 1998 Notes, with a term of sixty days and automatically convertible
at maturity into common stock at the rate of $10.67 per share. We
received cash subscriptions totaling $561,520 and issued 54,296 shares
of common stock to the holders of the 1998 Notes, which amount included
$17,632 of accrued interest.
(9) In October 1998, we offered to convert the 1997 Notes into
shares of common stock at a rate of $10.67 per share of common stock.
As a result of the conversion, we converted $115,000 in outstanding
principal and $24,568 in accrued interest into 26,169 shares of common
stock.
(10) From February 1999 through May 1999, we offered 15%
unsecured promissory notes, or the 1999 Notes, with a term of ninety
days and interest accruing at the rate of 37.5 shares of common stock
every thirty days for every $1,000 of outstanding principal. We
received $350,000 from the sale of 1999 Notes. $134,885 of the 1999
Notes have been paid off, and $180,000 of the 1999 Notes have been
converted into 81,909 shares of Series B convertible preferred stock,
which amount includes accrued interest and shares of common stock. All
of the outstanding 1999 Notes are in default. As of March 31, 2000, we
have issued 50,137 shares of common stock as interest and have
outstanding $35,115 in principal and $7,947 of accrued interest on the
1999 Notes. We intend to repay the 1999 Notes from the proceeds of this
offering.
(11) From March 1999 through October 1999, we conducted a
private placement, or the 1999 Preferred Stock Offering, of up to
$4,000,000 of Series B convertible preferred stock at $3.00 per share.
The 1999 Preferred Stock Offering was underwritten on a best-efforts
basis by Donald & Co. Securities Inc. who received a commission of 9%
and a non-refundable expense allowance of 2.5%. Upon completion of the
1999 Preferred Stock Offering, we issued 1,355,047 shares of Series B
convertible preferred stock in exchange for cash subscriptions of
$4,065,133 and 726,633 shares of Series B convertible preferred stock
in exchange for certain outstanding promissory notes and unpaid
salaries to certain officers and as part of the settlement with RSG
Investments. Pursuant to the terms of the Series B convertible
preferred stock, the shares are automatically converted into common
stock upon the closing of an initial public offering or a business
combination where a controlling interest of eRoom is acquired. The
conversion is at 45% of the initial public offering price, or, if an
initial public offering does not close by September 28, 1999, at 1.5
shares of common stock per share of Series B convertible preferred
stock. The reverse stock split did not affect the number of shares of
Series B convertible preferred stock outstanding.
(12) On May 30, 1999, we issued 198,750 shares of our common
stock to the SBD Limited Partnership, an entity controlled by Steven L.
Sunyich, our Chief Executive Officer and Chairman of the Board, in
exchange for a promissory note in favor eRoom in the original principal
amount of $1,590,000.00. The purpose of the issuance was to assist
eRoom in complying with the stock pledge requirements mandated by the
terms of the $1,500,000 loan from RSG Investments. On September 30,
1999, as a result of a settlement agreement with RSG Investments, the
198,750 shares of common stock were returned to the SBD Limited
Partnership. In turn, the SBD Limited Partnership surrendered the
198,750 shares of common stock to eRoom in exchange for the
cancellation of the promissory note. The shares of common stock were
booked as treasury stock and have been retired.
(13) On September 1, 1999, we entered into promissory note
purchase agreements with Steven L. Sunyich, our Chief Executive Officer
and Chairman of the Board, Derek Ellis, our Chief Financial Officer,
and a former executive officer of and consultant to eRoom, in which we
agreed to convert the outstanding indebtedness due on their respective
demand promissory notes into shares of Series B
II-4
<PAGE>
convertible preferred stock. As a result of these agreements, we issued
72,434 shares of Series B convertible preferred stock and 51,981 shares
of our common stock to Mr. Sunyich, 3,742 shares of Series B
convertible preferred stock and 2,990 shares of our common stock to
Mr. Ellis, and 29,808 shares of Series B convertible preferred stock
and 25,376 shares of our common stock to the former executive officer
and consultant.
(14) On December 30, 1999, we entered into conversion
agreements with Steven L. Sunyich, our Chief Executive Officer and
Chairman of the Board, and Derek Ellis, our Chief Financial Officer, in
which we agreed to convert unpaid salaries in exchange for shares of
Series B convertible preferred stock. As a result of these agreements,
we issued 73,052 shares of Series B convertible preferred stock to Mr.
Sunyich and 3,776 shares of Series B convertible preferred stock to Mr.
Ellis.
(15) In March and April 2000, we conducted a private
placement, or the 2000 Units Offering, of up to $3,000,000 of units
where each $100,000 unit consisted of a 7% convertible promissory
note in the original principal amount of $25,000, 23,077 shares of
Series C convertible preferred stock and a warrant to purchase 5,000
shares of common stock at an exercise price of $6.60 per share. The
2000 Units Offering was underwritten on a best-efforts basis by
Donald & Co. Securities Inc., who received a commission of 8% and a
non-accountable expense allowance of 0.5% As a result of the 2000
Units Offering, we received cash of $950,000 which resulted in the
issuance of 219,227 shares of Series C convertible preferred stock,
notes in the original principal amount of $237,500 and warrants to
purchase 47,500 shares of common stock. Pursuant to the terms of the
Series C convertible preferred stock, the shares are automatically
converted into common stock upon the closing of an initial public
offering at 55% of the initial public offering price if the initial
public offering closes by January 31, 2001. If the initial public
offering is not closed by January 31, 2001, Series C convertible
preferred stock shall convert at $3.30 per share.
(16) On March 30, 2000, we issued a warrant to purchase
125,000 shares of common stock, exercisable at $4.80 per share through
December 31, 2001, to Hall Communications, Inc. for advertising,
marketing and promotional services.
(17) As of March 31, 2000, we have issued options pursuant to
our 2000 Stock Option Plan to purchase an aggregate of 1,417,250 shares
of our common stock.
(18) As of April 13, 2000, with the exception of the options
granted pursuant to the 2000 Stock Option Plan and the warrants issued
to Hall Communications, we have issued and outstanding options and
warrants to purchase 950,565 shares of common stock to employees,
consultants, investors and other service providers of eRoom.
(19) On April 13, 2000, we issued 200,000 shares of common
stock in conjunction with the receipt of a $1,500,000 loan evidenced by
a promissory note of the same date.
The issuances of the securities in the transactions described in the
paragraphs above were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2), Rule 506 or Regulation S of the
Securities Act by an issuer not involving a public offering, where the
purchasers represented their intention to acquire the securities for
investment only and not with a view to distribution and received or had
access to adequate information about the Registrant. The issuance of options
and shares of common stock pursuant to the exercise of options to employees,
consultants and other service providers of Registrant described in paragraph
17 above were deemed to be exempted in reliance on Rule 701 promulgated under
the Securities Act as transactions pursuant to a compensatory benefit plan or
written compensation contract.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
See exhibits listed on the Exhibit Index following the signature
page of the Form SB-2 which is incorporated herein by reference.
II-5
<PAGE>
(b) Financial Statement Schedules
None.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions referenced
in Item 24 of this Registration Statement or otherwise, the Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act, and is therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities
being registered hereunder, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of Prospectus
filed as part of this Registration Statement in reliance upon Rule 430A
and contained in a form of Prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
City of Las Vegas, State of Nevada, on the 14th day of April 2000.
EROOM SYSTEM TECHNOLOGIES, INC.
By: /s/ Steven L. Sunyich
--------------------------------------------
Steven L. Sunyich
Its: President, Chief Executive Officer and
Chairman of the Board of Directors
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven L. Sunyich and Gregory L.
Hrncir, and each of them singly, as true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities to sign the registration
statement filed herewith and any or all amendments to said registration
statement (including post-effective amendments and registration statements
filed pursuant to Rule 462 and otherwise), and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Commission granting unto said attorneys-in-fact and agents the full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the foregoing, as to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his
substitute, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933,
this registration statement was signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Steven L. Sunyich President, Chief Executive Officer and April 14, 2000
- --------------------------- Chairman of the Board of Directors
Steven L. Sunyich
/s/ Derek K. Ellis Chief Financial Officer and Treasurer April 14, 2000
- ---------------------------
Derek K. Ellis
/s/ Gregory L. Hrncir General Counsel and Secretary April 14, 2000
- ---------------------------
Gregory L. Hrncir
/s/ Lawrence S. Schroeder Director April 14, 2000
- ---------------------------
Lawrence S. Schroeder
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT NAME PAGE
------ ------------- ----
<S> <C> <C>
1.01 * Form of Underwriting Agreement --
2.01 Agreement and Plan of Reorganization by and between RoomSystems International 100
Corporation and RoomSystems, Inc. dated December 31, 1999
2.02 Transfer Pricing Agreement by and between RoomSystems International Corporation and 105
RoomSystems, Inc. dated December 31, 1999
3.01 Amended and Restated Articles of Incorporation 112
3.02 Amended and Restated Certificate of Designation, Preferences, Rights and 120
Limitation of Series A convertible preferred stock
3.03 Amended and Restated Certificate of Designation, Preferences, Rights and 123
Limitation of Series B convertible preferred stock
3.04 Certificate of Designation, Preferences, Rights and Limitation of Series C convertible 128
preferred stock
3.05 Amended and Restated Bylaws 131
4.01 Form of Common Stock Certificate 145
4.02 Form of Certificate for Series A convertible preferred stock 147
4.03 Form of Certificate for Series B convertible preferred stock 149
4.04 Form of Certificate for Series C convertible preferred stock 151
5.01 * Opinion of Kummer Kaempfer Bonner & Renshaw --
10.01 2000 Stock Option Plan 153
10.02 Lease Agreement by and between RoomSystems Finance Corporation and 3770 Howard Hughes 165
Parkway Associates Limited Partnership dated October 8, 1997
10.03 Reserved For Future Use --
10.04 Master Corporate Agreement by and between Innco Corporation and RoomSystems, Inc. dated 192
April 6, 1998
10.05 + Amended and Restated Program Agreement by and among RoomSystems, Inc., RoomSystems 205
Finance Corporation, Steven L. Sunyich and Amresco Leasing Corporation dated March 10, 1999
10.06 + First Amendment to Amended and Restated Program Agreement by and among RoomSystems, Inc., 232
RoomSystems Finance Corporation, Steven L. Sunyich and Amresco Leasing Corporation dated
March 10, 1999
10.07 Indemnification Agreement by and between RoomSystems, Inc. and Alan C. Ashton dated August 234
17, 1999
10.08 Shareholders' Agreement and Proxy by and among Ash Capital, LLC, RoomSystems, Inc. and 239
certain stockholders of RoomSystems, Inc. dated August 17, 1999
10.09 Agreement of Understanding by and between RoomSystems, Inc. and Ash Capital, LLC, C&W/RSI 251
Partners, LLC, SKM Investment, LLC and Thunder Mountain Investments, LC dated August 17,
1999
II-8
<PAGE>
10.10 First Amendment to Agreement of Understanding by and between RoomSystems, Inc. and Ash 256
Capital, LLC, C&W/RSI Partners, LLC, SKM Investment, LLC and Thunder Mountain Investments,
LC dated September 30, 1999
10.11 Promissory Note Repurchase Agreement by and between Steven L. Sunyich and RoomSystems, Inc. 262
dated September 1, 1999
10.12 Indemnification Agreement by and between RSi BRE, Inc. and Donnelly Prehn dated September 266
27, 1999
10.13 Equipment Transfer Agreement by and between RoomSystems, Inc., RoomSystems International 277
Corporation, RSi BRE, Inc. and RSG Investments, LLC dated September 28, 1999
10.14 Amendment to Equipment Transfer Agreement by and between RoomSystems, Inc., RoomSystems 304
International Corporation, RSi BRE, Inc. and RSG Investments, LLC dated November 23, 1999
10.15 Conversion Agreement by and between Steven L. Sunyich and RoomSystems, Inc. dated 307
December 30, 1999
10.16 Loan and Security Agreement by and between RoomSystem Technologies, Inc. and Ash Capital, 312
LLC dated February 15, 2000
10.17 Letter Agreement by and between eRoom System Technologies, Inc. and Hall Communications, 326
Inc. dated March 30, 2000
10.18 Form of Hotel Revenue Sharing Lease Agreement 328
10.19 Form of Noncompetition and Nondisclosure Agreement (Sales) 336
10.20 Form of Consulting Agreement 338
10.21 Form of Sales Representation Agreement 342
10.22 Form of Executive Employment Agreement 350
10.23 Form of Offshore Loan Subscription Agreement dated as of April 13, 2000 357
10.24 Form of Secured Subordinated Promissory Note dated as of April 13, 2000 374
16.01 Letter regarding Change in Certifying Accountant 378
21.01 List of Subsidiaries 379
23.01 Consent of Hansen, Barnett & Maxwell 380
23.02 * Consent of Kummer Kaempfer Bonner & Renshaw (included in Exhibit 5.01) --
24.01 Power of Attorney (see page II-7) --
27.01 Financial Data Schedule 381
99.01 Consent of Dr. Alan C. Ashton 382
99.02 Consent of S. Leslie Flegel 383
</TABLE>
- --------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain
portions of these agreements, which have been omitted and filed
separately with the Commission.
II-9
<PAGE>
Exhibit 2.01
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement (this "AGREEMENT") is made this 31st day of December, 1999,
by and between RoomSystems International Corporation, a Nevada corporation
("ROOMSYSTEMS") and RoomSystems Inc., a Nevada corporation ("RSI").
W I T N E S S E T H:
WHEREAS, RSi owns all of the issued and outstanding shares of common stock
of RoomSystems; and
WHEREAS, RoomSystems has 1000 shares of common stock (the "ROOMSYSTEMS
COMMON STOCK") issued and outstanding; and
WHEREAS, RSi currently has 3,034,245 shares of common stock issued and
outstanding (the "RSI COMMON STOCK"), 360,000 shares of Series "A" Convertible
Preferred Stock issued and outstanding (the "RSI SERIES A STOCK"), 2,109,702
shares of Series "B" Convertible Preferred Stock issued and outstanding (the
"RSI SERIES B STOCK") (a schedule of holders of RSi Common Stock, RSi Series A
Stock and Series B Stock is attached hereto as Exhibit "A" and incorporated
herein by reference) and warrants and options to purchase shares of RSi's common
stock as set forth on to the schedule of warrants and options attached hereto as
Exhibit "B," and incorporated herein by reference (referred to herein
collectively the "WARRANTS AND OPTIONS"); and
WHEREAS, the boards of directors (referred to herein collectively as the
"BOARDS") of both RSi and RoomSystems have determined it advisable and in the
best interest of each corporation and the respective shareholders of each
corporation that the reorganization herein described be effected, whereby
RoomSystems becomes the parent corporation and RSi becomes a wholly-owned
subsidiary of RoomSystems (referred to herein as the "REORGANIZATION"); and
WHEREAS, a majority of the shareholders of both RSi and RoomSystems has
authorized and approved the Reorganization; and
WHEREAS, upon the effective date of the Reorganization, as described in
this Agreement, the RSi Common Stock, the RSi Series A Stock, the RSi Series B
Stock and the Warrants and Options shall be exchanged on a 1:1 basis with
RoomSystems' Common Stock (the "ROOMSYSTEMS COMMON STOCK"), RoomSystems' Series
A Convertible Preferred Stock (the "ROOMSYSTEMS SERIES A STOCK"), RoomSystems'
Series B Convertible Preferred Stock (the "ROOMSYSTEMS SERIES B STOCK") and
RoomSystems' warrants and options to purchase shares of RoomSystems Common Stock
(the "ROOMSYSTEMS WARRANTS AND OPTIONS"); and
WHEREAS, upon the completion of the Reorganization, RoomSystems shall be
the parent corporation and RSi shall be a wholly-owned subsidiary thereof; and
WHEREAS, RSi has certain assets (the "RSI ASSETS"), which are more
particularly described on Exhibit "C," a copy of which is attached hereto and
incorporated herein by reference; and
WHEREAS, certain of the RSi Assets shall be transferred and delivered to
RoomSystems pursuant to this Agreement (the "TRANSFERRED RSI ASSETS") and the
remainder of the RSi Assets
1
<PAGE>
shall remain the property of RSi (the "REMAINING RSI ASSETS"). A schedule
of Transferred RSi Assets is attached hereto as Exhibit "D" and incorporated
herein by reference and a schedule of the Remaining RSi Assets is attached
hereto as Exhibit "E" and incorporated herein by reference.
NOW THEREFORE, upon good and valid consideration, the receipt and adequacy
of which are hereby mutually acknowledged, the parties agree as follows:
ARTICLE I
APPROVAL OF REORGAINZATION
SECTION 1.01 APPROVAL OF REORGANIZATION. RSi and RoomSystems have each
held a special meeting of the shareholders and a majority of the shareholders of
the respective companies has elected to authorize and approve the
Reorganization. In addition, the Boards have approved the Reorganization.
Therefore, the Reorganization is approved by RSi and RoomSystems. The minutes
of the shareholders' meetings and Boards are attached as Exhibits "F" and "G,"
and incorporated herein by reference.
SECTION 1.02 EFFECTIVE DATE. The Reorganization shall become effective
upon the execution of this Agreement by the duly appointed officers of RSi and
RoomSystems (the "EFFECTIVE DATE").
ARTICLE II
CORPORATE DOCUMENTS AND ORGANIZATION
SECTION 2.01 IDENTITY AND OPERATION OF RSI AND ROOMSYSTEMS. Upon the
Effective Date, RoomSystems shall be the parent corporation and shall own all of
the issued and outstanding shares of common stock of RSi.
(a) ISSUANCE OF SHARES TO ROOMSYSTEMS. Upon the Effective Date,
RSi shall issue to RoomSystems 1,000 shares of its common stock to evidence the
ownership of RSi by RoomSystems.
SECTION 2.02 SHAREHOLDERS OF RSI. The shares of RSi Common Stock, RSi
Series A Stock and the RSi Series B Stock held by the current shareholders of
RSi shall be exchanged, on a 1:1 basis for the RoomSystems Common Stock, the
RoomSystems Series A Stock and the RoomSystems Series B Stock (the "EXCHANGED
STOCK").
(a) THE WARRANTS AND OPTIONS. Upon the Effective Date, the
Warrants and Options shall be exchanged, on a 1:1 basis, for the RoomSystems
Warrants and Options (the "EXCHANGED WARRANTS AND OPTIONS").
SECTION 2.03 ARTICLES OF INCORPORATION. The Articles of Incorporation for
RSi, as originally recorded on April 17, 1996, and RoomSystems (the
"ROOMSYSTEMS ARTICLES"), as originally recorded on August 31, 1999, are attached
hereto as Exhibits "H" and "I, respectively, and incorporated herein by
reference.
(a) THE ROOMSYSTEMS ARTICLES. Subsequent to the
Effective Date, the RoomSystems Articles shall be amended to increase the
number of authorized RoomSystems
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Common Stock and blank check preferred stock and to change its name to
"RoomSystem Technologies, Inc." and RSi's Articles of Incorporation shall be
amended and restated as set forth on Exhibits "J" and J-1," respectively,
each of which is attached hereto and incorporated herein by reference.
SECTION 2.04 BYLAWS. The "Amended and Restated By-Laws" of RoomSystems
and RSi are attached hereto as Exhibits "K" and "L," respectively, and are
incorporated herein by reference.
SECTION 2.05 DISTRIBUTION OF THE EXCHANGED STOCK AND THE EXCHANGED
WARRANTS AND OPTIONS. Within thirty (30) days of the Effective Date,
RoomSystems shall distribute the Exchanged Stock and the Exchanged Warrants
and Options.
SECTION 2.06 DIRECTORS AND OFFICERS OF ROOMSYSTEMS AND RSI. The
directors and officers of RoomSystems and RSi, upon the reorganization, shall
be as set forth on Exhibit "M," a copy of which is attached hereto and
incorporated herein by reference.
ARTICLE III
TRANSFER OF ASSETS
SECTION 3.01 DESCRIPTION OF THE ASSETS. A comprehensive list of the RSi
Assets is set forth on Exhibit "C," attached to this Agreement and incorporated
herein by reference.
SECTION 3.02 TRANSFER AND DELIVERY OF THE TRANSFERRED RSI ASSETS. Upon
the Effective Date, RSi shall transfer and deliver to RoomSystems, the
Transferred RSi Assets as set forth on Exhibit "D," attached hereto and
incorporated herein by reference. Upon the transfer and delivery of the
Transferred RSi Assets, the Remaining RSi Assets shall be duly recorded on the
books of RSi.
ARTICLE IV
TRANSFER PRICING AGREEMENT
SECTION 4.01 TRANSFER PRICING AGREEMENT. Upon the Effective Date, or as
soon thereafter as possible, RSi and RoomSystems shall execute the "Transfer
Pricing Agreement," attached hereto as Exhibit "N" and incorporated herein by
reference.
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 5.01 MISCELLANEOUS PROVISIONS. The following miscellaneous
provisions are an integral part of this Agreement.
(a) BINDING OBLIGATION. This Agreement shall inure to the benefit
of and constitute a binding obligation upon the contracting parties, their
respective heirs, legal representatives and permitted assigns.
(b) MODIFICATIONS. This Agreement may not be modified except by an
instrument in writing signed by the parties hereto.
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(c) HEADINGS. The headings used in this Agreement are inserted for
reference purposes only and shall not be deemed to limit or affect in any
way, the meaning or interpretation of any of the terms or provisions of
this Agreement.
(d) SEVERABILITY. The provisions of this Agreement are severable,
and should any provision hereof be void, voidable, unenforceable, or
invalid, such a void shall not affect any other portion or provision of
this Agreement.
(e) WAIVER. Any waiver by any party hereto of any breach of this
Agreement of any kind or character whatsoever by the other party, whether
such waiver is direct or implied, shall not be construed as a continuing
waiver or consent to any subsequent breach of this Agreement on the part of
the other party.
(f) APPLICABLE LAW. This Agreement shall be interpreted, construed,
and enforced according to the laws of the State of Nevada.
(h) ASSIGNMENT. This Agreement and the rights and obligations
herein may not be assigned or assumed by any party hereto without the prior
written consent of the other parties.
This Agreement is executed on the date first written above.
ROOMSYSTEMS, INC., ROOMSYSTEMS INTERNATIONAL
A NEVADA CORPORATION CORPORATION, A NEVADA CORPORATION
BY: /s/ Steven L. Sunyich BY: /s/ Gregory L. Hrncir
----------------------- ----------------------
Steven L. Sunyich Gregory L. Hrncir
ITS: President & CEO ITS: Secretary
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Exhibit 2.02
TRANSFER PRICING AGREEMENT
This Transfer pricing Agreement (this "AGREEMENT") is entered into as of
this 31st day of December 1999 by and between RoomSystems, Inc. ("RSI") and
RoomSystem Technologies, Inc. ("RST").
W I T N E S S E T H:
WHEREAS, RSi is in the business of assembling and marketing fully-automated
refreshment centers (referred to herein sometimes as "REFRESHMENT CENTERS" or
"MINIBARS") and electronic safes, manufactured to either stand alone or operate
connected to the Refreshment Centers (the "ROOMSAFES") (the RoomSafes and
Refreshment Centers are referred to herein sometimes as the "PRODUCTS"); and
WHEREAS, RST owns all patent, copyright, trademark and other intellectual
property rights in and to the hardware and software relating to the Refreshment
Centers and the RoomSafes (the "INTELLECTUAL PROPERTY RIGHTS"); and
WHEREAS, RSi has a Marketing Research and Development Department (the "R&D
DEPARTMENT"), established to development enhancements and improvements to the
Refreshment Centers and RoomSafes' hardware and software (the "INTELLECTUAL
PROPERTY ENHANCEMENTS"); and
WHEREAS, pursuant to the terms of this Agreement, RST shall retain actual
and proprietary ownership in and to the Intellectual Property Rights and the
Intellectual Property Enhancements; and
WHEREAS, RSi specializes in the design, manufacture and assembly of
automated minibars, including the Refreshment Centers and RoomSafes and has
proprietary manufacturing and assembly procedures and protocols for such
products; and
WHEREAS, RSi has a small assembly facility and maintains manufacturing and
vendor relationships that can be used to manufacture the products; and
WHEREAS, RSi has a Field Service Department, that can be used to install
and provide on-going maintenance on RSi and RST's installed Refreshment Centers
and RoomSafes (the "FIELD SERVICE DEPARTMENT"); and
WHEREAS, RSi also has an accounting department, that can be used to provide
certain accounting services, more specifically outlined in this Agreement (the
"RSI ACCOUNTING DEPARTMENT"); and
WHEREAS, RST has a unique financing program and specializes in financing
programs, designed and established to provide financing for the placement of the
Products in the lodging industry on a lease or revenue sharing basis (the "RST
FINANCING PROGRAM"); and
WHEREAS, included in the RST Financing program are financing options not
available to other minibar companies similarly situated to RSi; and
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WHEREAS, RSi shall have the exclusive right to sell, domestically, the
Refreshment Centers and RoomSafes to RST pursuant to the RST Financing Program;
and
NOW THEREFORE, in consideration of the monetary consideration herein
recited, the mutual promises herein contained and subject to the fulfillment of
the conditions set forth herein, the parties agree as follows:
ARTICLE I
PLACEMENT OF THE REFRESHMENT CENTERS AND ROOMSAFES
SECTION 1.1 PLACEMENT OF THE REFRESHMENT CENTERS AND ROOMSAFES. RST
shall market the Products on a sale, lease or revenue sharing basis. Upon
receipt of an order for placement of the Products (sale, lease or revenue
sharing) from a hotel or third party entity (the "CONTRACTING PARTY"), RST shall
complete a "Hotel Revenue Sharing Lease Agreement" (the "REVENUE SHARING
AGREEMENT") or "Standard Lease Application" or "Customer Order--Purchase /
Finance Options" (the Standard Lease Application and Customer Order--Purchase /
Finance Option agreements are referred to herein collectively as the
"LEASE/PURCHASE AGREEMENT") with the Contracting Party, in the forms attached
hereto as Exhibit "A-1" - "A-3" and incorporated herein by reference. Upon
execution of the Revenue Sharing Agreement or the Lease/Purchase Agreement with
each Contracting Party, RST shall do the following:
A. PURCHASE ORDER TO RSI. RST shall remit a purchase order (the
"PO") to RSi, which shall provide an order for the Products described in
the PO and include the following information:
- Name and address of the Contracting Party;
- Number of the Products ordered (the "ORDERED PRODUCTS");
- Model number of the Products;
- Specifications relative to the Products, i.e. regular door or
glass door, cabinet or without cabinet, etc.;
- Delivery time;
- Place of delivery and whether RSi should deliver the Ordered
Products directly to the Contracting Party, f.o.b., or whether
the same should be delivered directly to RST;
- Purchase price; and
- Any other information relevant to the Products described on the
PO.
B. RSI'S DUTIES UPON RECEIPT OF PO. Upon receipt of the PO, RSi
shall do the following:
- Acknowledge to RST in writing of the receipt and acceptance of
the PO;
- Order all parts necessary for the manufacture and assembly of the
Ordered Products;
- Notify the Field Service Department in writing, obtain clearance
for installation and notify RST, in writing of the proposed
installation schedule;
- Confirm in writing to RST the estimated date of completion and
installation of the Ordered Products; and
- Provide, in conjunction with the RSi Accounting Department, an
accounting to RST of the actual costs of the Ordered Products,
including actual costs of
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parts, labor costs, sales commissions and estimated
installation costs (the "FULLY BURDENED COST"). An
approximate schedule of the Fully Burdened Costs is attached
hereto as Exhibit "C" and incorporated herein by reference.
Exhibit "C' may be amended and modified upon the written
consent of the parties to this Agreement.
C. RST'S PAYMENT TO RSI OF THE ORDERED PRODUCTS. RST shall pay RSi
the Fully Burdened Cost, plus an additional five percent (5%) thereon (the
"COMPLETE PURCHASE PRICE") within one hundred and twenty (120) days of
installation of the Ordered Products. Other than the Complete Purchase
Price, RST shall have no other financial or monetary obligation to RSi
pursuant to the PO or the Ordered Products.
D. RIGHT OF FIRST REFUSAL. RSi shall have a right of first refusal
to manufacture any and all of RST's other products, provided however that
RSi remits an estimate of costs to RST within sixty (60) days of RST's
submission of product specifications to RSi.
SECTION 1.2 RSI'S MANUFACTURING EXCLUSIVITY. RSi shall be RST's
exclusive manufacturer of the Refreshment Centers and the RoomSafes, and all
hardware and software attendant thereto, solely for the domestic (United States
and Canada) hospitality industry. RST may not enter into any agreement for
manufacturing or any manufacturing program agreement with any of RSi's
competitors or any other third party or entity, without RSi's express written
consent.
SECTION 1.3 THE RST FINANCING PROGRAM EXCLUSIVITY. RSi and RST agree
that RSi shall use the RST Financing Program as its exclusive program for lease
and revenue sharing financing for the Products placed pursuant to a Revenue
Sharing Agreement.
SECTION 1.4 OWNERSHIP OF THE PRODUCTS. RST shall retain ownership of
any and all of the Products ordered from RSi under this Agreement.
Notwithstanding the foregoing, any and all of the Products manufactured pursuant
to a PO from RSI BRE, a wholly-owned subsidiary of RST, shall be owned by RSi
BRE.
SECTION 1.5 MAINTENANCE AGREEMENT. As further consideration hereunder,
RST agrees to require, pursuant to the Revenue Sharing Agreement, that each
Contracting Party, enter into a "Hotel Installation, Maintenance and License
Agreement" (the "MAINTENANCE AGREEMENT") with RSi, whereby RSi shall provide
after-sale maintenance during the term of the Revenue Sharing Agreement, a copy
of the form is attached hereto as Exhibit "B" and incorporated herein by
reference. Furthermore, upon a Contracting party entering into a Lease/Purchase
Agreement, RST will use its best efforts to ensure that such Contracting Part
enters into a Maintenance Agreement with RSi. The Maintenance Agreement shall
provide for payment to RSi of at least $.08 per day, or as otherwise agreed to
by the parties hereto, for each of the Products installed under this Agreement,
for the length of the term of the relevant Revenue Sharing Agreement or
Lease/Purchase Agreement (the "MAINTENANCE FEE").
A. COLLECTION AND REMITTANCE OF THE MAINTENANCE FEE. RST agrees to
act as RSi's servicer with respect to the Maintenance Fee, in that RST
shall collect the Maintenance Fee from each Contracting Party monthly and
remit the same to RSi within fifteen (15) days of RST's receipt thereof.
SECTION 1.6 TERM. The term of this Agreement shall be for seven (7)
years, unless earlier terminated by the parties hereunder.
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ARTICLE II
PATENT AND INTELLECTUAL PROPERTY RIGHTS
SECTION 2.1 OWNERSHIP OF THE INTELLECTUAL PROPERTY RIGHTS. At all times
hereunder, and at all times after the termination of this Agreement, RST shall
own any and all of the Intellectual Property Rights, relating to or associated
with the Refreshment Centers, the RoomSafes and all software and hardware used
in the operation thereof.
SECTION 2.2 OWNERSHIP OF THE INTELLECTUAL PROPERTY ENHANCEMENTS. At all
times hereunder, and at all times after the termination of this Agreement, RST
shall own any and all of the Intellectual Property Enhancements, relating to or
associated with the Refreshment Centers, the RoomSafes and all software and
hardware used in the operation thereof.
SECTION 2.3 DUTY TO ENHANCE THE PRODUCTS. During the term of this
Agreement, RSi shall have an affirmative duty to support and finance the R&D
Department's enhancement, modification and improvement of the Products,
including all software used in connection with the Products.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RSi
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF RSI. RSi hereby
represents and warrants as follows:
A. ARMS LENGTH TRANSACTION. That the matters contained in this
Agreement have been negotiated in an arms' length manner.
B. BINDING AGREEMENT. That upon execution and delivery hereof and
at the execution of this Agreement and any agreements contemplated herein,
all of such shall be legal, valid and binding obligations of RSi and shall
be enforceable against RSi in accordance with their respective terms.
C. OTHER AGREEMENTS. That except as otherwise herein provided, the
execution and delivery of this Agreement and the consummation of the
transactions provided for herein will not result in a breach of any terms
or provision of, or constitute a default under any other agreement or
instrument to which RSi is a party or by which RSi is bound.
D. THIRD PARTY APPROVALS. Except as otherwise herein set forth, no
consents or approvals of any third party or parties are required prior to
the execution, delivery and performance of this Agreement and the other
documents referred to herein.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE RST
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. RST
hereby represents and warrants as follows:
A. ARMS LENGTH TRANSACTION. That the matters contained in this
Agreement have been negotiated in an arms' length manner.
B. BINDING AGREEMENT. That upon execution and delivery hereof and
at the execution of this Agreement and any agreements contemplated herein,
all of such shall be legal, valid and binding obligations of RST and shall
be enforceable against RST in accordance with their respective terms.
C. OTHER AGREEMENTS. That except as otherwise herein provided, the
execution and delivery of this Agreement and the consummation of the
transactions provided for herein will not result in a breach of any terms
or provision of, or constitute a default under any other agreement or
instrument to which RST is a party or by which RST is bound.
D. THIRD PARTY APPROVALS. Except as otherwise herein set forth, no
consents or approvals of any third party or parties are required prior to
the execution, delivery and performance of this Agreement and the other
documents referred to herein.
ARTICLE V
CONDUCT OF THE RSi'S and RST'S BUSINESS
Section 5.1 CONDUCT OF BUSINESS. RSi and RST agree that, pending the
execution of this Agreement and during term hereof, that the businesses of the
RSi and RST shall be conducted only in the ordinary course and substantially in
accordance with their prior business practices.
ARTICLE VI
DEFAULT
Either party shall be in default under this Agreement upon the happening
of the following:
SECTION 6.1 DELINQUENT PAYMENT. A payment or any part of the subsequent
costs hereunder is not made within thirty (30) days after the due date of such
payments; or
SECTION 6.2 DEFAULT IN OTHER OBLIGATIONS. Any party defaults in the
performance of any covenant that is contained in this or any document or
instrument entered into by the parties hereto relating to this Agreement and
such default is not cured within the lesser of any "cure" period that is
prescribed in such document or instrument or thirty (30) days.
ARTICLE VII
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REMEDIES
SECTION 7.1 REMEDIES. Time is the essence of this Agreement. Upon
the occurrence of any default hereunder, or under the documents and
instruments described herein, and at any time thereafter while such default
remains uncured, the non-defaulting party shall have the option, upon giving
notice to the defaulting party, to declare all of the obligations immediately
due and payable. Whether or not such party exercises such right of
acceleration, the non-defaulting party shall have the following remedies.
A. GENERAL RIGHTS. Shall be entitled to exercise any and all rights
and remedies available under applicable Nevada law, including injunctive
relief.
B. NOTICE OF DEFAULT. The non-defaulting party shall give notice of
default by the defaulting party by mailing such notice, postage prepaid,
at least thirty (30) days before any event is to take place, to the address
of the defaulting party that is set forth in this Agreement.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 MISCELLANEOUS PROVISIONS. The following miscellaneous
provisions are an integral part of this Agreement.
A. BINDING OBLIGATION. This Agreement shall inure to the benefit of
and constitute a binding obligation upon the contracting parties, their
respective heirs, legal representatives and permitted assigns.
B. MODIFICATIONS. This Agreement may not be modified except by an
instrument in writing signed by the parties hereto.
C. HEADINGS. The headings used in the Agreement are inserted for
reference purposes only and shall not be deemed to limit or affect in any
way, the meaning or interpretation of any of the terms or provisions of
this Agreement.
D. SEVERABILITY. The provisions of this Agreement are severable,
and should any provision hereof be void, voidable, unenforceable, or
invalid, such a void, voidable, unenforceable or invalid provision shall
not affect any other portion or provision of this Agreement.
E. WAIVER. Any waiver by any party hereto of any breach of this
Agreement of any kind or character whatsoever by the other party, whether
such waiver is direct or implied, shall not be construed as a continuing
waiver or consent to any subsequent breach of this Agreement on the part of
the other party.
F. APPLICABLE LAW. This Agreement shall be interpreted, construed,
and enforced according to the laws of the State of Nevada.
G. ATTORNEYS' FEES. In the event any action or proceeding is
brought by any party under this Agreement, the prevailing party shall be
entitled to recover attorneys' fees and costs of court in such an amount as
such court may adjudge reasonable.
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H. ASSIGNMENT. This Agreement and the rights and obligations herein
may not be assigned or assumed by any party hereto without the prior
written consent of the other parties, which consent shall not be
unreasonably withheld.
I. ARBITRATION. The parties agree that, in the event of a dispute
between the parties relative to or arising out of this Agreement, the
parties agree to offer such dispute to the American Arbitration Association
for a binding resolution of such dispute(s).
J. INTERPRETATION AND ENFORCEMENT. Any notices, requests, demand or
other communication required or permitted hereunder shall be deemed to be
proper when deposited in the United States mail, postage prepaid or when
deposited with a public telegram company for transmittal, charges prepaid
each party's last known address
Entered into on the date first written above.
ROOMSYSTEMS, INC.
By: /s/ Steven L. Sunyich
----------------------
Steven L. Sunyich
Its: Chief Executive Officer
ROOMSYSTEM TECHNOLOGIES, INC.
By: /s/ Gregory L. Hrncir
-----------------------
Gregory L. Hrncir
Its: Secretary
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Exhibit 3.01
CERTIFICATE OF AMENDMENT AND RESTATEMENT OF
ARTICLES OF INCORPORATION
OF
ROOMSYSTEM TECHNOLOGIES, INC.
The undersigned hereby certify as follows:
1. They are the President and the Secretary of RoomSystem Technologies,
Inc., a Nevada corporation (the "Company").
2. On March 28, 2000, by written consent, the Board of Directors of the
Company approved the amendment and restatement of the Company's Articles of
Incorporation, pursuant to Sections 78.385 and 78.403 of the Nevada Revised
Statutes, as amended.
3. On March 28, 2000, upon the recommendation of the Board of Directors
of the Company, the stockholders holding a majority of the outstanding common
stock of the Company approved the amendment and restatement of the Company's
Articles of Incorporation by written consent.
4. Article One of the Company's Articles of Incorporation is hereby
amended to read in full as follows:
ARTICLE ONE
SECTION 1.1 NAME OF CORPORATION. The name of the corporation (the
"CORPORATION") is EROOM SYSTEM TECHNOLOGIES, INC.
5. Article Four of the Company's Articles of Incorporation is hereby
amended to read in full as follows:
ARTICLE FOUR
SECTION 4.1 CAPITAL STOCK. The total number of shares of stock the
Corporation is authorized to issue shall be Sixty Million (60,000,000) shares.
This stock shall be divided into two classes and designated as "Common Stock"
and "Preferred Stock."
The capital stock of the Corporation, after the amount of the subscription
price has been paid in money, property, or services, as the directors shall
determine, shall not be subject to assessment to pay the debts of the
Corporation, nor for any other purpose, and no stock issued as fully paid up
shall ever be assessable or assessed, and the Articles of Incorporation shall
not be amended in this regard.
SECTION 4.2 COMMON STOCK. Fifty Million (50,000,000) shares of the
authorized stock have a par value of $.001 per share and are designated as
Common Stock. Common Stock may be issued for such consideration as may be fixed
from time to time by the Board of Directors.
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SECTION 4.3 PREFERRED STOCK. Five Million (5,000,000) shares of the
authorized stock have a par value of $.001 per share and are designated as
Preferred Stock. The Board of Directors shall have the authority to authorize
the issuance of the Preferred Stock from time to time in one or more classes or
series, and to state in the resolution or resolutions from time to time adopted
providing for the issuance thereof the following:
(a) Whether or not the class or series shall have voting rights, full or
limited, the nature and the qualification, limitations and
restrictions on those rights, or whether the class or series will be
without voting rights;
(b) The number of shares to constitute the class or series and the
designation thereof;
(c) The preferences and relative, participating, optional or other special
rights, if any, and the qualifications, limitations, or restrictions
thereof, if any, with respect to any class or series;
(d) Whether or not the shares of any class or series shall be redeemable
and if redeemable the redemption price or prices, and the time or
times at which, and the terms and conditions upon which such shares
shall be redeemable and the manner of redemption;
(e) Whether or not the shares of a class or series shall be subject to the
operation of retirement or sinking funds to be applied to the purchase
or redemption of such shares for retirement, and if such retirement or
sinking funds be established, the amount and the terms and provisions
thereof;
(f) The dividend rate, whether dividends are payable in cash, stock of the
Corporation, or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the
relation to the payment of dividends payable on any other class or
classes or series of stock, whether or not such dividend shall be
cumulative or noncumulative, and if cumulative, the date or dates from
which such dividends shall accumulate;
(g) The preferences, if any, and the amounts thereof which the holders of
any class or series thereof are entitled to receive upon the voluntary
or involuntary dissolution of, or upon any distribution of the assets
of, the Corporation;
(h) Whether or not the shares of any class or series are convertible into,
or exchangeable for, the shares of any other class or classes or of
any other series of the same or any other class or classes of stock of
the Corporation and the conversion price or prices or ratio or ratios
or the rate or rates at which such exchange may be made, with such
adjustments, if any, as shall be stated and expressed or provided for
in such resolution or resolutions; and
(i) Such other rights and provisions with respect to any class or series
as may to the Board of Directors seem advisable.
The shares of each class or series of the Preferred Stock may vary from the
shares of any other class or series thereof in any respect. The Board of
Directors may increase the number of shares of the Preferred Stock designated
for any existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for any
other class or series. The
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Board of Directors may decrease the number of shares of the Preferred Stock
designated for any existing class or series of the Preferred Stock and the
shares so subtracted shall become authorized, unissued and undesignated
shares of the Preferred Stock.
SECTION 4.4 CONVERTIBLE PREFERRED STOCK. Five Hundred Thousand (500,000)
shares of Series A Convertible Preferred Stock, $.001 par value; Two Million
Five Hundred Thousand (2,500,000) shares of Series B Convertible Preferred
Stock, $.001 par value; and Two Million (2,000,000) shares of Series C
Convertible Preferred Stock, $.001 par value (collectively, the "Convertible
Preferred Stock"), may be issued from time to time without action by the
stockholders. Convertible Preferred Stock may be issued for such consideration
as may be fixed from time to time by the Board of Directors.
SECTION 4.5 VOTING POWER FOR HOLDERS OF COMMON AND CONVERTIBLE PREFERRED
STOCK. Except as otherwise provided in these Articles of Incorporation, each
holder of Common Stock shall be entitled to one vote for each share of Common
Stock held by him or her on all matters submitted to stockholders for a vote and
each holder of any series of Convertible Preferred Stock shall have no voting
rights, either general or specific, of any kind whatsoever except (A) as
expressly provided by Nevada law; or (B) on matters affecting Convertible
Preferred Stock.
6. That the text of the Amended and Restated Articles of Incorporation of
the Company is hereby amended and restated by this certificate to read in full
as follows:
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AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
eROOM SYSTEM TECHNOLOGIES, INC.
ARTICLE ONE
SECTION 1.1 NAME OF CORPORATION. The name of the corporation (the
"CORPORATION") is EROOM SYSTEM TECHNOLOGIES, INC.
ARTICLE TWO
SECTION 2.1 AGENT FOR SERVICE OF PROCESS. The name of the agent for
service of process is Gregory L. Hrncir and that the office of agent for service
of process is located at 3770 Howard Hughes Parkway, Suite 175, Clark County,
Las Vegas, Nevada 89019, and that the Corporation may maintain an office, or
offices within or without the State of Nevada as may from time to time be
designated by the Board of Directors, or by the bylaws of said Corporation, and
that this Corporation may conduct all corporation business of every kind and
nature, including the holding of all meetings of directors and stockholders
outside the State of Nevada as well as within the State of Nevada.
ARTICLE THREE
SECTION 3.1 CORPORATE PURPOSE. The purpose or purposes for which this
Corporation is organized are:
To develop market and finance products with application in the hospitality
and other industries; and to engage without qualification, in any lawful act or
activity for which corporations may be organized under the laws of the State of
Nevada.
ARTICLE FOUR
SECTION 4.1 CAPITAL STOCK. The total number of shares of stock the
Corporation is authorized to issue shall be Sixty Million (60,000,000) shares.
This stock shall be divided into two classes and designated as "Common Stock"
and "Preferred Stock."
The capital stock of the Corporation, after the amount of the subscription
price has been paid in money, property, or services, as the directors shall
determine, shall not be subject to assessment to pay the debts of the
Corporation, nor for any other purpose, and no stock issued as fully paid up
shall ever be assessable or assessed, and the Articles of Incorporation shall
not be amended in this regard.
SECTION 4.2 COMMON STOCK. Fifty Million (50,000,000) shares of the
authorized stock have a par value of $.001 per share and are designated as
Common Stock. Common Stock may be issued for such consideration as may be fixed
from time to time by the Board of Directors.
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SECTION 4.3 PREFERRED STOCK. Five Million (5,000,000) shares of the
authorized stock have a par value of $.001 per share and are designated as
Preferred Stock. The Board of Directors shall have the authority to authorize
the issuance of the Preferred Stock from time to time in one or more classes or
series, and to state in the resolution or resolutions from time to time adopted
providing for the issuance thereof the following:
(j) Whether or not the class or series shall have voting rights, full or
limited, the nature and the qualification, limitations and
restrictions on those rights, or whether the class or series will be
without voting rights;
(k) The number of shares to constitute the class or series and the
designation thereof;
(l) The preferences and relative, participating, optional or other special
rights, if any, and the qualifications, limitations, or restrictions
thereof, if any, with respect to any class or series;
(m) Whether or not the shares of any class or series shall be redeemable
and if redeemable the redemption price or prices, and the time or
times at which, and the terms and conditions upon which such shares
shall be redeemable and the manner of redemption;
(n) Whether or not the shares of a class or series shall be subject to the
operation of retirement or sinking funds to be applied to the purchase
or redemption of such shares for retirement, and if such retirement or
sinking funds be established, the amount and the terms and provisions
thereof;
(o) The dividend rate, whether dividends are payable in cash, stock of the
Corporation, or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the
relation to the payment of dividends payable on any other class or
classes or series of stock, whether or not such dividend shall be
cumulative or noncumulative, and if cumulative, the date or dates from
which such dividends shall accumulate;
(p) The preferences, if any, and the amounts thereof which the holders of
any class or series thereof are entitled to receive upon the voluntary
or involuntary dissolution of, or upon any distribution of the assets
of, the Corporation;
(q) Whether or not the shares of any class or series are convertible into,
or exchangeable for, the shares of any other class or classes or of
any other series of the same or any other class or classes of stock of
the Corporation and the conversion price or prices or ratio or ratios
or the rate or rates at which such exchange may be made, with such
adjustments, if any, as shall be stated and expressed or provided for
in such resolution or resolutions; and
(r) Such other rights and provisions with respect to any class or series
as may to the Board of Directors seem advisable.
The shares of each class or series of the Preferred Stock may vary from the
shares of any other class or series thereof in any respect. The Board of
Directors may increase the number of shares of the Preferred Stock designated
for any existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for any
other class or series. The
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Board of Directors may decrease the number of shares of the Preferred Stock
designated for any existing class or series of the Preferred Stock and the
shares so subtracted shall become authorized, unissued and undesignated shares
of the Preferred Stock.
SECTION 4.4 CONVERTIBLE PREFERRED STOCK. Five Hundred Thousand (500,000)
shares of Series A Convertible Preferred Stock, $.001 par value; Two Million
Five Hundred Thousand (2,500,000) shares of Series B Convertible Preferred
Stock, $.001 par value; and Two Million (2,000,000) shares of Series C
Convertible Preferred Stock, $.001 par value (collectively, the "Convertible
Preferred Stock"), may be issued from time to time without action by the
stockholders. Convertible Preferred Stock may be issued for such consideration
as may be fixed from time to time by the Board of Directors.
SECTION 4.5 VOTING POWER FOR HOLDERS OF COMMON AND CONVERTIBLE PREFERRED
STOCK. Except as otherwise provided in these Articles of Incorporation, each
holder of Common Stock shall be entitled to one vote for each share of Common
Stock held by him or her on all matters submitted to stockholders for a vote and
each holder of any series of Convertible Preferred Stock shall have no voting
rights, either general or specific, of any kind whatsoever except (A) as
expressly provided by Nevada law; or (B) on matters affecting Convertible
Preferred Stock.
ARTICLE FIVE
SECTION 5.1 DIRECTORS. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors, which shall
consist of not fewer than two (2) and nor more than nine (9) directors, the
exact number to be determined from time to time by resolution adopted by the
Board of Directors, providing that the number of directors shall not be reduced
to less than two (2), except in cases where all the shares of the Corporation
are owned beneficially and of record by either one or two stockholders, the
number of directors may be less than two (2) but not less than the number of
stockholders.
ARTICLE SIX
SECTION 6.1 EXISTENCE. The Corporation is to have perpetual existence.
ARTICLE SEVEN
SECTION 7.1 GENERAL POWERS OF THE BOARD OF DIRECTORS. In furtherance, but
not in limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to do the following:
A. To fix the amount to be reserved as working capital over and
above its capital stock paid in; to authorize and cause to be executed,
mortgages and liens upon the real and personal property of the Corporation.
B. By Resolution passed by a majority of the whole Board, to
designate one (1) or more committees, each committee to consist of one or
more of the directors of the Corporation, which to the extent provided in
the Resolution, or in the Bylaws of the Corporation, shall have and may
exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation. Such committee, or committees,
shall have such name, or names as may be stated in the Bylaws of the
Corporation, or as may be determined from time to time by Resolution
adopted by the Board of Directors.
C. When and as authorized by the affirmative vote of the
stockholders holding stock and entitling them to exercise at least a
majority of the voting power given at a stockholders'
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meeting called for that purpose, or when authorized by the written
consent of the holders of at least a majority of the voting stock issued
and outstanding, the Board of Directors shall have power and authority
at any meeting, to sell, lease or exchange all of the property and
assets of the Corporation, including its good will and its corporate
franchises, upon such terms and conditions as its Board of Directors
deems expedient and in the best interest of the Corporation.
ARTICLE EIGHT
SECTION 8.1 BYLAWS. The Board of Directors shall have power to make,
alter, amend and repeal the Bylaws of the Corporation. Any Bylaws made by the
Board of Directors under the powers conferred hereby may be altered, amended or
repealed by a majority vote of the entire Board of Directors or by a two-thirds
vote of all of the stock issued and outstanding at any annual or special meeting
of stockholders, provided that notice of intention to amend shall have been
contained in the notice for such meeting.
ARTICLE NINE
SECTION 9.1 MEETINGS OF STOCKHOLDERS. Meetings of the stockholders may be
held at such place within or outside the State of Nevada, if the Bylaws so
provide. The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Nevada at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
ARTICLE TEN
SECTION 10.1 AMENDMENT OF ARTICLES OF INCORPORATION. This Corporation
reserves the right to amend, alter, change or repeal any provision contained in
the Articles of Incorporation, in a manner now or hereafter prescribed by
statute, or by the Articles of Incorporation, and all rights conferred upon
stockholders here are granted subject to this reservation.
ARTICLE ELEVEN
SECTION 11.1 PRE-EMPTIVE RIGHTS. No shareholder shall be entitled as a
matter of right to subscribe for or receive additional shares of any class of
stock of the Corporation, whether now or hereafter authorized, or any bonds,
debentures or other securities convertible into stock, but such additional
shares of stock or other securities convertible into stock may be issued or
disposed of by the board of directors to such persons and on such terms as in
its discretion it shall deem advisable.
ARTICLE TWELVE
SECTION 12.1 DIRECTORS' AND OFFICERS' LIABILITY. A director or officer of
the Corporation shall not be personally liable to this Corporation or its
stockholders for damages for breach of fiduciary duty as a director or officer,
but this Article shall not eliminate or limit the liability of a director or
officer for (i) acts or omissions which involve intentional misconduct, fraud or
a knowing violation of law or (ii) the unlawful payment of distributions. Any
repeal or modification of this article by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director or officer of the Corporation for acts or
omissions prior to such repeal or modification.
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ARTICLE THIRTEEN
SECTION 13.1 INDEMNITY. Every person who was or is a party to, or is
threatened to be made a party to, or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director or officer of another
corporation, or as its representative in a partnership, joint venture, trust or
other enterprise, shall be indemnified and held harmless to the fullest extent
legally permissible under the laws of the State of Nevada from time to time
against all expenses, liability and loss (including attorneys' fees, judgments,
fines and amounts paid or to be paid in settlement) reasonably incurred or
suffered by him or her in connection therewith. Such right of indemnification
shall be a contract right which may be enforced in any manner desired by such
person. The expenses of directors and officers incurred in defending a civil or
criminal action, suit or proceeding must be paid by the Corporation as they are
incurred and in advance of the final disposition of the action suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he or she is not entitled to be indemnified by the
Corporation. Such right of indemnification shall not be exclusive of any other
right which such directors, officers or representatives may have or hereafter
acquire, and, without limiting the generality of such statement, they shall be
entitled to their respective rights of indemnification under any bylaw,
agreement, vote of stockholders, provision of law, or otherwise, as well as
their rights under this Article.
Without limiting the application of the foregoing, the Board of Directors
may adopt Bylaws from time to time with respect to indemnification, to provide
at all times the fullest indemnification permitted under the laws of the State
of Nevada, and may cause the Corporation to purchase and maintain directors and
officers insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred in any such capacity or arising out of
such status, whether or not the Corporation would have the power to indemnify
such person. The indemnification provided in this Article shall continue as to
a person who has ceased to be a director, officer, employee, agent, and shall
inure to the benefit of the heirs, executors and administrators of such person.
IN WITNESS WHEREOF, the undersigned parties set forth their hand this 28th
day of March 2000.
/s/ Steven L. Sunyich
--------------------------------------
Steven L. Sunyich, President
/s/ Gregory L. Hrncir
--------------------------------------
Gregory L. Hrncir, Secretary
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Exhibit 3.02
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION
PREFERENCES, RIGHTS AND LIMITATIONS OF
SERIES A PREFERRED STOCK OF
EROOM SYSTEM TECHNOLOGIES, INC.
eRoom System Technologies, Inc. (the "CORPORATION"), a corporation
organized and existing under the laws of the State of Nevada, does hereby
certify that:
Pursuant to authority vested in the Board by the Corporation's Amended and
Restated Articles of Incorporation, the Board of Directors of the Corporation
(the "BOARD") has duly adopted the following recitals and resolutions:
WHEREAS, the Corporation is authorized by its Amended and Restated Articles
of Incorporation to issue 500,000 shares of Series A Preferred Stock;
WHEREAS, pursuant to a Certificate of Designation of Preferences, Rights
and Limitations of Series A Preferred Stock (the "Certificate of Designation"),
the Board authorized and determined the rights, preferences, privileges, and
restrictions granted to or imposed upon the Series A Preferred Stock, fixed the
number of shares constituting such series, and determined the designation
thereof; and
WHEREAS, the Board desires to amend and restate the Certificate of
Designation for the purpose of establishing that the Series A Preferred Stock
rank senior to all common stock, as well as all warrants and options to purchase
common stock.
NOW, THEREFORE, BE IT RESOLVED, that the Board hereby amends and restates
the provisions of the Certificate of Designation relating to the Series A
Preferred Stock, as follows:
1. DESIGNATION. The series of Preferred Stock provided for by this
resolution shall be designated "8% Series A Convertible Preferred Stock"
(hereafter referred to as "SERIES A STOCK").
2. AUTHORIZATION. The number of authorized shares constituting the
Series A Stock shall be 500,000 shares.
3. RANK. The Series A Stock shall, with respect to dividend rights,
rights on redemption, rights on conversion and rights on liquidation, winding up
and dissolution, rank senior to all common stock, warrants and options to
purchase Common Stock established by the Board or the Stockholders (all of such
equity securities of the Corporation to which the Series A Stock ranks senior
are collectively referred to herein as "JUNIOR STOCK"). Series A Stock shall
rank with Series B and C Preferred Stock on a pari passu basis.
4. DIVIDENDS. The holders of Series A Stock shall be entitled to receive
in preference to the holders of any Junior Stock in any fiscal year, an annual
cumulative dividend of 8%, payable
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in the form of cash, quarterly in arrears, commencing as of November 14,
1998, out of legally available funds, subject to the Corporation's ability to
pay such dividends as limited by Nevada law.
5. LIQUIDATION PREFERENCE. In the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of Series
A Stock shall be entitled to receive, out of the assets of the Corporation,
whether those assets are capital or surplus of any nature, an amount equal to
$10.00 per share of Series A Stock, plus all accrued and unpaid dividends on the
date of that distribution, and no more, before any payment shall be made or any
assets distributed to the holders of Junior Stock, and the remaining assets
shall be distributed ratably to the holders of Junior Stock. If upon
liquidation, dissolution, or winding up of the Corporation the assets thus
distributed among the holders of Series A Stock shall be insufficient to permit
the payment to those stockholders of the full preferential amounts, then the
entire assets of the Corporation to be distributed shall be distributed ratably
among the holders of Series A Stock.
A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation, shall not be deemed to be a liquidation, dissolution or
winding up, within the meaning of this paragraph.
6. VOTING RIGHTS. Only shares of Common Stock shall entitle the holder
thereof to vote on matters requiring approval of the stockholders of the
Corporation. Series A Stock shall not, except as otherwise may be (a) expressly
provided by Nevada law, or (b) on matters affecting Series A Stock, be entitled
to vote on the election of directors or any other matter.
7. CONVERSION RIGHTS.
(a) Each holder of Series A Stock shall automatically, following the
earlier of (i) the completion of any merger or other business combination by the
Corporation wherein a controlling interest in the Corporation is acquired by
another entity; or (ii) upon the close of an Initial Public Offering ("IPO"),
upon surrender of holder's Series A Stock into fully paid and non-assessable
Common Stock of the Corporation on a 1:1 basis, provided that the IPO price per
share is $10 per share (the "IPO PRICE"). If the IPO Price is less than $10 per
share, the conversion rate shall be $10 divided by the IPO Price. Such automatic
conversion shall be exercised by surrendering for such purpose to the
Corporation, or its transfer agent, certificates representing the shares to be
converted, duly endorsed in blank or accompanied by proper instruments of
transfer, and at the time of such surrender, the person converting shall be
deemed to be the holder of record of Common Stock issuable on such conversion,
notwithstanding that the share register of the Corporation shall then be closed
or the certificates representing such shares of Common Stock shall not then be
actually delivered to such person.
(b) The number of shares of Common Stock into which Series A Stock
may be converted shall be subject to adjustment from time to time in certain
cases as follows:
(i) The Corporation shall be entitled to make such further
adjustments as it considers advisable in order that any event treated for
federal income tax purposes as a dividend or other distribution of stock or
stock rights will not be taxable, so far as practicable, to the recipient of
such dividends or distributions.
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(c) Whenever the amount of Common Stock deliverable upon the
conversion of Series A Stock shall be adjusted pursuant to the provisions
hereof, the Corporation shall forthwith file, at its principal executive office
and with any transfer agent or agents for Series A Stock and for its Common
Stock, a statement stating the adjusted amount of its Common Stock or other
securities deliverable per Series A Stock and setting forth in reasonable detail
the method of calculation and the facts requiring such adjustment and upon which
such calculation is based. Each adjustment shall remain in effect until a
subsequent adjustment hereunder is required.
(d) The Corporation shall at all times reserve and keep available,
out of its authorized but unissued shares of Common Stock, the full number of
shares of Common Stock deliverable upon the conversion of all the then
outstanding shares of Series A Stock and shall take all such action and obtain
all such permits or orders as may be necessary to enable the Corporation
lawfully to issue such shares of Common Stock upon the conversion of shares of
Series A Stock.
(d) No fractional shares of Common Stock shall be issued upon
conversion of Series A Stock. In lieu of any fractional shares to which the
holder would otherwise be entitled, the Corporation shall, at its option, either
(i) pay cash equal to the product of such fraction multiplied by the fair market
value of one share of the Corporation's Common Stock on the date of conversion,
or (ii) round the fractional share to the nearest whole share, as determined in
good faith by the Board.
8. EXCLUSION OF OTHER RIGHTS. Except as herein provided or as may
otherwise be required by law, the shares of Series A Stock shall not have any
preferences or relative, participating, optional or other special rights other
than those specifically set forth in this resolution and in the Certificate of
Incorporation of the Corporation.
IN WITNESS WHEREOF, RoomSystem Technologies, Inc. has caused this
Amended and Restated Certificate of Designation to be signed by its Secretary
this 29th day of March 2000.
ROOMSYSTEM TECHNOLOGIES, INC.
/s/ STEVEN L. SUNYICH
--------------------------------------
STEVEN L. SUNYICH
Chief Executive Officer, President
/s/ GREGORY L. HRNCIR
--------------------------------------
GREGORY L. HRNCIR
Secretary
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EXHIBIT 3.3
AMENDMENT AND RESTATEMENT
OF
CERTIFICATE OF DESIGNATION
PREFERENCES, RIGHTS AND LIMITATIONS OF
SERIES B PREFERRED STOCK
OF
eROOM SYSTEM TECHNOLOGIES, INC.
eRoom System Technologies, Inc. (the "CORPORATION"), a corporation
organized and existing under the laws of the State of Nevada, does hereby
certify that:
Pursuant to authority vested in the Board of Directors (the "BOARD") by
the Corporation's Amended and Restated Articles of Incorporation, the Board
has duly adopted the following recitals and resolutions:
WHEREAS, the Corporation is authorized by its Amended and Restated
Articles of Incorporation to issue 2,500,000 shares of Series B Preferred
Stock;
WHEREAS, the Board has previously filed a Certificate of Designation,
Preferences, Rights and Limitations of Series B Preferred Stock (the
"Certificate of Designation") on February 2, 2000;
WHEREAS, the Board desires to amend and restate the Certificate of
Designation to: (i) reflect the change in the Corporation's name; (ii) revise
Section 7(a) of the Certificate to provide for the conversion of shares of
Series B Preferred Stock into shares of the Corporation's common stock such
that the resulting number of shares of the Corporation's common stock is
calculated by dividing $3.00 by forty-five percent (45%) of the Corporation's
initial public offering price; and (iii) revise Section 7(a) of the
Certificate to provide for the conversion of shares of Series B Stock into
shares of the Corporation's common stock at a rate of one and one half (1.5)
shares of the Corporation's common stock per share of Series B Stock, only
upon the Corporation's failure to have filed a registration statement for its
initial public offering by April 30, 2000 or to have completed its initial
public offering by September 28, 2 000, and upon no other circumstance;
WHEREAS, a majority of the outstanding shares of Series B Preferred
Stock have approved of and ratified the proposed amendment and restatement of
the Certificate of Designation;
NOW, THEREFORE, BE IT RESOLVED, that the Board hereby fixes and
determines the designation of, the number of shares constituting, and the
rights, preferences, privileges and restrictions relating to the Series B
Preferred Stock, as follows:
1. DESIGNATION. The series of Preferred Stock provided for by this
resolution shall be designated "6% Series B Convertible Preferred Stock"
(hereafter referred to as "SERIES B STOCK").
2. AUTHORIZATION. The number of authorized shares constituting the
Series B Stock shall be 2,500,000 shares.
3. RANK. The Series B Stock shall, with respect to dividend rights,
rights on redemption, rights on conversion and rights on liquidation, winding
up and dissolution, rank senior to all common stock, warrants and options to
purchase Common Stock established by the Board or the Stockholders (all of
such equity securities of the Corporation to which the Series B Stock ranks
senior are collectively referred to herein as "JUNIOR STOCK"). Series B Stock
shall rank with Series A Preferred Stock on a pari passu basis.
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4. DIVIDENDS. The holders of Series B Stock are entitled to an annual
cumulative dividend of six percent (6%), payable in the form of Common Stock
based upon the Conversion Price, defined hereinafter, and subject to the
Corporation's ability to pay such dividends as limited by Nevada law.
5. LIQUIDATION PREFERENCE. In the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of
Series B Stock shall be entitled to receive, out of the assets of the
Corporation, whether those assets are capital or surplus of any nature, an
amount equal to $10.00 per share of Series B Stock, plus all accrued and
unpaid dividends on the date of that distribution, and no more, before any
payment shall be made or any assets distributed to the holders of Junior
Stock, and the remaining assets shall be distributed ratably to the holders
of Junior Stock. If upon liquidation, dissolution, or winding up of the
Corporation the assets thus distributed among the holders of Series B Stock
shall be insufficient to permit the payment to those stockholders of the full
preferential amounts, then the entire assets of the Corporation to be
distributed shall be distributed ratably among the holders of Series B Stock.
A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the
assets of the Corporation, shall not be deemed to be a liquidation,
dissolution or winding up, within the meaning of this paragraph.
6. VOTING RIGHTS. Only shares of the Corporation's common stock shall
entitle the holder thereof to vote on matters requiring approval of the
stockholders of the Corporation. Series B Stock shall not, except as
otherwise may be provided by law or except as such matters affecting the
rights of the Series B Stock holders, be entitled to vote on the election of
directors or any other matter. Notwithstanding the foregoing, if the
Corporation has not completed an Initial Public Offering ("IPO") on or before
September 28, 2000 (the "EFFECTIVE VOTING DATE"), holders of the Series B
Stock shall be accorded voting rights. Each share of Series B Stock shall be
entitled to one (1) vote after the Effective Voting Date.
7. CONVERSION RIGHTS.
(a) Each holder of Series B Stock shall automatically, at the
effective date of the Corporation's IPO, if the same is completed on or
before September 28, 2000, upon surrender of the certificates therefor,
convert all of such holder's Series B Stock into fully paid and
non-assessable shares of Common Stock (the "COMMON STOCK") of the
Corporation, with each share of Series B Stock converting into that number of
share(s) of Common Stock that results from the following calculation: the
quotient resulting from $3.00 (the "Numerator") divided by forty-five percent
(45%) of the IPO price per share (the "Denominator"); for example, an IPO
price of $10.00 per share would result in the conversion of each share of
Series B Stock into approximately 0.67 shares of Common Stock. However, if
the Corporation: (i) has not filed a registration statement for its IPO with
the United States Securities and Exchange Commission by April 30, 2000; or
(ii) has not completed its IPO by September 28, 2000, each holder of Series B
Stock shall have the option to convert such shares into Common Stock at the
rate of one and one half (1.5) shares of the Corporation's Common Stock per
share of Series B Stock.
The conversion of Series B Stock described herein, whether it is
automatic or elective shall be exercised by surrendering for such purpose to
the Corporation, at any place where the Corporation shall maintain a transfer
agent for its Common Stock or Series B Stock, certificates representing the
shares to be converted, duly endorsed in blank or accompanied by proper
instruments of transfer, and at the time of such surrender, the person
exercising such option to convert shall be deemed to be the holder of record
of Common Stock issuable on such conversion, notwithstanding that the share
register of the Corporation shall then be closed.
(b) The number of shares of Common Stock into which Series B Stock
may be
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converted shall be subject to adjustment from time to time in certain cases
as follows:
(i) The Corporation shall be entitled to make such further
adjustments as it considers advisable in order that any event treated for
federal income tax purposes as a dividend or other distribution of stock or
stock rights will not be taxable, so far as practicable, to the recipient of
such dividends or distributions.
(c) Whenever the amount of Common Stock deliverable upon the
conversion of Series B Stock shall be adjusted pursuant to the provisions
hereof, the Corporation shall forthwith file, at its principal executive
office and with any transfer agent or agents for Series B Stock and for its
Common Stock, a statement stating the adjusted amount of its Common Stock or
other securities deliverable per Series B Stock and setting forth in
reasonable detail the method of calculation and the facts requiring such
adjustment and upon which such calculation is based. Each adjustment shall
remain in effect until a subsequent adjustment hereunder is required.
(d) The Corporation shall at all times reserve and keep
available, out of its authorized but unissued shares of Common Stock, the
full number of shares of Common Stock deliverable upon the conversion of all
the then outstanding shares of Series B Stock and shall take all such action
and obtain all such permits or orders as may be necessary to enable the
Corporation lawfully to issue such shares of Common Stock upon the conversion
of shares of Series B Stock.
(e) No fractional shares of Common Stock shall be issued upon
conversion of Series B Stock. In lieu of any fractional shares to which the
holder would otherwise be entitled, the Corporation shall pay cash equal to
the product of such fraction multiplied by the fair market value of one share
of the Corporation's Common Stock on the date of conversion, as determined in
good faith by the Board.
8. EXCLUSION OF OTHER RIGHTS. Except as herein provided or as may
otherwise be required by law, the shares of Series B Stock shall not have any
preferences or relative, participating, optional or other special rights
other than those specifically set forth in this resolution and in the
Articles of Incorporation, as amended from time to time, of the Corporation.
IN WITNESS WHEREOF, eRoom System Technologies, Inc. has caused this
Certificate of Designation to be signed by its President and Secretary this
31st day of March 2000.
eROOM SYSTEM TECHNOLOGIES, INC.
/S/ STEVEN L. SUNYICH
---------------------------------------
STEVEN L. SUNYICH
CHIEF EXECUTIVE OFFICER, PRESIDENT
/S/ GREGORY L. HRNCIR
---------------------------------------
GREGORY L. HRNCIR
SECRETARY
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ACKNOWLEDGMENT
STATE OF NEVADA )
) ss.
COUNTY OF CLARK )
This instrument was acknowledged before me on April 11, 2000 by Steven
L. Sunyich, as President and Gregory L. Hrncir, as Secretary, of eRoom System
Technologies, Inc.
/s/ KIMBERLY SCHROEDER
-----------------------------------
NOTARY PUBLIC
[SEAL] KIMBERLY SCHROEDER
Notary Public - Nevada
My appt. exp. July 18, 2000
No. 98-4320-1
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Exhibit 3.04
CERTIFICATE OF DESIGNATION
PREFERENCES, RIGHTS AND LIMITATIONS OF
SERIES C PREFERRED STOCK OF
ROOMSYSTEM TECHNOLOGIES, INC.
RoomSystem Technologies, Inc. (the "Corporation"), a corporation
organized and existing under the laws of the State of Nevada, does hereby
certify that:
Pursuant to authority vested in this Board of Directors (the "Board") by
the Corporation's Amended and Restated Articles of Incorporation, the Board has
duly adopted the following recitals and resolutions:
WHEREAS, this corporation is authorized by its Amended and Restated
Articles of Incorporation, to issue 2,000,000 shares of Series C Preferred
Stock;
WHEREAS, this Board is authorized to determine the rights, preferences,
privileges, and restrictions granted to or imposed upon the Series C Preferred
Stock, to fix the number of shares constituting such series, and to determine
the designation thereof; and
WHEREAS, the Board desires, pursuant to its authority as aforesaid, to
issue and to determine and fix the rights, preferences, privileges and
restrictions relating to the Series C Preferred Stock, and the number of shares
constituting and the designation of said series.
NOW, THEREFORE, BE IT RESOLVED, that the Board hereby fixes and determines
the designation of, the number of shares constituting, and the rights,
preferences, privileges and restrictions relating to the Series C Preferred
Stock, as follows:
1. Designation. The series of Preferred Stock provided for by this
resolution shall be designated "7% Series C Convertible Preferred Stock"
(hereafter referred to as "Series C Stock").
2. Authorization. The number of shares constituting the Series C
Stock shall be 2,,000,000 shares.
3. Rank. The Series C Stock shall, with respect to dividend rights, rights
on redemption, rights on conversion and rights on liquidation, winding up and
dissolution, rank senior to all common stock, warrants and options to purchase
Common Stock established by the Board or the Stockholders (all of such equity
securities of the Corporation to which the Series C Stock ranks senior are
collectively referred to herein as "Junior Stock"). Series C Stock shall rank
with Series A and Series B Preferred Stock on a pari passu basis.
4. Dividends. The holders of Series C Stock are entitled to an annual
cumulative dividend of seven percent (7%), payable in cash and subject to the
Corporation's ability to pay such dividends as limited by Nevada law and payable
as and when declared by the Corporation's Board of Directors.
5. Liquidation Preference. In the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of Series
C Stock shall be entitled to receive, out of the assets of the Corporation,
whether those assets are capital or surplus of any nature, an amount equal to
$10.00 per share of Series C Stock, plus all accrued and unpaid dividends on the
date of that distribution, and no more, before any payment shall be made or any
assets distributed to the holders of
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Junior Stock, and the remaining assets shall be distributed ratably to the
holders of Junior Stock. If upon liquidation, dissolution, or winding up of the
Corporation the assets thus distributed among the holders of Series C Stock
shall be insufficient to permit the payment to those stockholders of the full
preferential amounts, then the entire assets of the Corporation to be
distributed shall be distributed ratably among the holders of Series C Stock.
A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation, shall not be deemed to be a liquidation, dissolution or
winding up, within the meaning of this paragraph.
6. Voting Rights. Only shares of the Corporation's common stock shall
entitle the holder thereof to vote on matters requiring approval of the
stockholders of the Corporation. Series C Stock shall not, except as otherwise
may be provided by law or except as such matters affecting the rights of the
Series C Stock holders, be entitled to vote on the election of directors or any
other matter.
7. Conversion Rights.
(a) Each holder of Series C Stock shall automatically, upon the
effective date of the Corporation's IPO, convert all of such holder's Series C
Stock into fully paid and non-assessable Common Stock (the "Common Stock") of
the Corporation, at 55% of the IPO Price (the "Conversion Price") provided the
IPO closes by January 31, 2001, otherwise Series C Stock shall be convertible at
$3.30 per share.
(b) Upon conversion, the Series C Stock shall be subject to a one
(1) year lock-up from the close of the IPO, or for an additional period if
required by NASDAQ.
The conversion of Series C Stock described herein, whether it is
automatic or elective shall be exercised by surrendering for such purpose to the
Corporation, at any place where the Corporation shall maintain a transfer agent
for its Common Stock or Series C Stock, certificates representing the shares to
be converted, duly endorsed in blank or accompanied by proper instruments of
transfer, and at the time of such surrender, the person exercising such option
to convert shall be deemed to be the holder of record of Common Stock issuable
on such conversion, notwithstanding that the share register of the Corporation
shall then be closed.
(c) The number of shares of Common Stock into which Series C Stock
may be converted shall be subject to adjustment from time to time in certain
cases as follows:
(i) The Corporation shall be entitled to make such further
adjustments as it considers advisable in order that any event treated for
federal income tax purposes as a dividend or other distribution of stock or
stock rights will not be taxable, so far as practicable, to the recipient of
such dividends or distributions.
(d) Whenever the amount of Common Stock deliverable upon the
conversion of Series C Stock shall be adjusted pursuant to the provisions
hereof, the Corporation shall forthwith file, at its principal executive office
and with any transfer agent or agents for Series C Stock and for its Common
Stock, a statement stating the adjusted amount of its Common Stock or other
securities deliverable per Series C Stock and setting forth in reasonable detail
the method of calculation and the facts requiring such adjustment and upon which
such calculation is based. Each adjustment shall remain in effect until a
subsequent adjustment hereunder is required.
(e) The Corporation shall at all times reserve and keep available,
out of its authorized but unissued shares of Common Stock, the full number of
shares of Common Stock
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deliverable upon the conversion of all the then outstanding shares of Series C
Stock and shall take all such action and obtain all such permits or orders as
may be necessary to enable the Corporation lawfully to issue such shares of
Common Stock upon the conversion of shares of Series C Stock.
(f) No fractional shares of Common Stock shall be issued upon
conversion of Series C Stock. In lieu of any fractional shares to which the
holder would otherwise be entitled, the Corporation shall pay cash equal to the
product of such fraction multiplied by the fair market value of one share of the
Corporation's Common Stock on the date of conversion, as determined in good
faith by the Board.
8. Exclusion of Other Rights. Except as herein provided or as may
otherwise be required by law, the shares of Series C Stock shall not have any
preferences or relative, participating, optional or other special rights other
than those specifically set forth in this resolution and in the Certificate of
Incorporation, as amended from time to time, of the Corporation.
IN WITNESS WHEREOF, RoomSystem Technologies, Inc. has caused this
Certificate of Designation to be signed by its President and Secretary this 31st
day of January 2000.
ROOMSYSTEM TECHNOLOGIES, INC.
/s/
------------------------------
STEVEN L. SUNYICH
Chief Executive Officer, President
/s/
------------------------------
GREGORY L. HRNCIR
Secretary
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Exhibit 3.05
AMENDED AND RESTATED
BYLAWS
OF
eROOM SYSTEM TECHNOLOGIES, INC.
A NEVADA CORPORATION
ARTICLE I
Offices
Section 1.1. Principal Office. The principal office of this corporation
shall be located at 3770 Howard Hughes Parkway, Suite 175, Las Vegas, NV 89109.
Section 1.2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Nevada as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
Stockholders
Section 2.1. Annual Meetings. Annual meetings of the stockholders shall be
held each year on the second Tuesday of October each year at 10:00 A.M. At the
annual meeting, the stockholders shall elect by vote a Board of Directors and
transact such other business as may properly be brought before the meeting.
Section 2.2. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation may be called by the Chairman of the Board of
Directors, by the President or the Secretary by resolution of the Board of
Directors or at the request in writing of one or more stockholders owning shares
in the aggregate entitled to cast not less than fifty percent (50%) of the votes
at the meeting. Such request shall state the purpose of the proposed meeting and
shall be personally delivered or sent by registered mail or by telegraph or
other facsimile transmission to the Chairman of the Board, the President or the
Secretary of the Corporation. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Section 2.4 of this Article II. If notice is not given
within sixty days (60) days of the request, the person or persons requesting the
meeting may, subject to any applicable federal or state law including but not
limited to federal securities laws, give the notice. Nothing contained in this
Section 2.2 shall be construed as limiting, fixing or affecting the time when a
meeting of stockholders called by action of the Board of Directors may be held.
Business
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transacted at any special meeting of stockholders shall be limited to the
purposes stated in the notice.
Section 2.3. Place of Meeting. All annual meetings of the stockholders
shall be held at the principal office of the corporation or at such other place
within or without the State of Nevada as the directors shall determine. Special
meetings of the stockholders may be held at such time and place within or
without the State of Nevada as shall be stated in the notice of the meeting, or
in a duly executed waiver of notice thereof.
Section 2.4. Notices. Notices of meetings shall be in writing and signed
by the President or a Vice-President or the Secretary or an Assistant Secretary
or by such other person or persons as the directors shall designate. Such notice
shall state the purpose or purposes for which the meeting is called and the time
and the place, which may be within or without this State, where it is to be
held. The notice of any meeting at which directors are to be elected shall
include the name of any nominee or nominees whom, at the time of the notice,
management intends to present for election. A copy of such notice shall be
either delivered personally to or shall be mailed, postage prepaid, to each
stockholder of record entitled to vote at such meeting not less than ten (10)
nor more than sixty (60) days before such meeting. If mailed, it shall be
directed to a stockholder at his address as it appears upon the records of the
corporation and upon such mailing of any such notice, the service thereof shall
be complete and the time of the notice shall begin to run from the date upon
which such notice is deposited in the mail for transmission to such stockholder.
Personal delivery of any such notice to any officer of a corporation or
association, or to any member of a partnership shall constitute delivery of such
notice to such corporation, association or partnership. In the event of the
transfer of stock after delivery of such notice of and prior to the holding of
the meeting it shall not be necessary to deliver or mail notice of the meeting
to the transferee.
Section 2.5. Affidavit of Mailing. An affidavit of the mailing or other
means of giving any notice of any stockholders' meeting may be executed by the
Secretary, Assistant Secretary, or any Transfer Agent of the Corporation giving
the notice, and shall be filed and maintained in the minute book of the
Corporation.
Section 2.6. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Articles of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders or if the voting power necessary
to approve a matter for which the meeting has been noticed has not voted in
favor of such matter, the stockholders entitled to vote thereat, present in
person or represented by proxy, the Chairman of the Board of Directors, or a
majority of the Board of Directors shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented or until the voting power necessary to
approve the matter for which the meeting has been noticed has been voted in
favor of such matter.
Section 2.7. Adjournment. When any meeting of stockholders, either annual
or special, is adjourned to another time or place, notice may not be given of
the adjourned meeting
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if the time and place are announced at a meeting at which the adjournment is
taken, unless a new record date for the adjourned meeting is fixed, or unless
the adjournment is for more than forty-five (45 days from the date set for the
original meeting, in which case the Board of Directors shall set a new record
date. Notice of any such adjourned meeting, if required, shall be given to each
stockholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Section 2.4 of this Article II. At any adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 2.8. Voting. When a quorum is present or represented at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall be sufficient to elect directors
or to decide any question brought before such meeting, unless the question is
one upon which by express provision of the statutes or of the Articles of
Incorporation a different vote is required, in which case such express provision
shall govern and control the decision of such question. Each Common Stockholder
of record of the corporation shall be entitled at each meeting of stockholders
to one vote for each share of Common Stock standing in his, her or its name on
the books of the corporation. Upon the demand of any Common Stockholder, the
vote for directors and the vote upon any question before the meeting shall be by
ballot.
Section 2.9. Proxies; Inspectors of Election. At any meeting of the
stockholders any stockholder may be represented and vote by a proxy or proxies
appointed by an instrument in writing. In the event that any such instrument in
writing shall designate two or more persons to act as proxies, a majority of
such persons present at the meeting, or, if only one shall be present, then that
one shall have and may exercise all of the powers conferred by such written
instrument upon all of the persons so designated unless the instrument shall
otherwise provide. No proxy or power of attorney to vote shall be used to vote
at a meeting of the stockholders unless it shall have been filed with the
secretary of the meeting when required by the inspectors of election. All
questions regarding the qualification of voters, the validity of proxies and the
acceptance or rejection of votes shall be decided by three inspectors of
election who shall be appointed by the Board of Directors, or if not so
appointed, then by the presiding officer of the meeting.
The inspectors of election shall:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
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(f) Determine the results; and
(g) Do any other acts that may be proper to conduct the election or vote
with fairness to all stockholders.
Section 2.10. Action by Written Consent. Any action which may be taken by
the vote of the stockholders at a meeting may be taken without a meeting if
authorized by the written consent of stockholders holding at least a majority of
the voting power, unless the provisions of the statutes or of the Articles of
Incorporation require a greater proportion of voting power to authorize such
action in which case such greater proportion of written consents shall be
required.
Section 2.11. Waiver of Notice. The transactions of any meeting of
stockholders, either annual or special, however called and noticed, and wherever
held, shall be as valid as though had at a meeting duly held after regular call
and notice, if a quorum be present either in person or by proxy, and if, either
before or after the meeting, each person entitled to vote, who was not present
in person or by proxy, signs a written waiver of notice or a consent to a
holding of the meeting, or an approval of the minutes. The waiver of notice of
consent need not specify either the business to be transacted or the purpose of
any annual or special meeting of stockholders. All such waivers, consents, or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance by a person at a meeting shall also
constitute a waiver of notice of that meeting, except when the person objects,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened, and except that attendance at a
meeting is not a waiver of any right to object to the consideration of matters
required by law to be included in the notice of the meeting, but not so
included, if that objection is expressly made at the meeting.
ARTICLE III
Directors
Section 3.1. General Powers. The business of the corporation shall be
managed by its Board of Directors which may exercise all such powers of the
corporation and do all such lawful acts and things not otherwise required by
statute, by the Articles of Incorporation or by these Bylaws to be exercised or
addressed by the Common Stockholders.
Section 3.2. Number. The number of directors may from time to time be
increased or decreased by action of the Board of Directors to not less than two
(2) nor more than nine (9).
Section 3.3. Tenure and Qualification. Each Director shall hold office
until the next annual meeting of shareholders and until his/her successor shall
have been duly elected and qualified. Directors need not be residents of the
State of Nevada or shareholders of the corporation.
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Section 3.3. Vacancies. Vacancies in the Board of Directors, including
those caused by an increase in the number of directors, may be filled by a
majority of the remaining directors, though less than a quorum, or by a sole
remaining director, and each director so elected shall hold office until his
successor is elected at an annual or a special meeting of the stockholders. The
holders of two-thirds (2/3) of the outstanding shares of stock entitled to vote
may at any time peremptorily terminate the term of office of all or any of the
directors by vote at a meeting called for such purpose or by a written statement
filed with the secretary or, in his absence, with any other officer. Such
removal shall be effective immediately, even if successors are not elected
simultaneously and the vacancies on the Board of Directors resulting therefrom
shall be filled only by the stockholders.
A vacancy or vacancies in the Board of Directors shall be deemed to exist
in case of the death, resignation or removal of any directors, or if the
authorized number of directors be increased, or if the Board of Directors by
resolution declares vacant the office of director who has been declared of
unsound mind by an order of the court or if the stockholders fail at any annual
or special meeting of stockholders at which any director or directors are
elected to elect the full authorized number of directors to be voted for at that
meeting.
The stockholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. If the Board of Directors
accepts the resignation of a director tendered to take effect at a future time,
the Board or the stockholders shall have power to elect a successor to take
office when the resignation is to become effective.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of his term of office.
ARTICLE IV
Meetings of the Board of Directors
Section 4.1. Regular Meetings. Regular meetings of the Board of Directors
shall be held at any place within or without the State which has been designated
from time to time by resolution of the Board or by written consent of all
members of the Board. In the absence of such designation regular meetings shall
be held at the principal office of the corporation. Special meetings of the
Board may be held either at a place so designated or at the principal office.
Any meeting, regular or special, may be held by conference telephone network or
similar communications method by which all persons participating in the meeting
can hear each other. Regular meetings of the Board of Directors may be held
without call or notice at such time and at such place as shall from time to time
be fixed and determined by the Board of Directors.
Section 4.2. Initial Meeting. The first meeting of each newly elected
Board of Directors shall be held at any place within or without the State which
has been designated from time to time by resolution of the Board or by written
consent of all members of the Board. In the event such meeting is not so held,
the meeting may be held at such time and place as shall be specified in a notice
given as herein provided for special meetings of the Board of Directors.
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Section 4.3. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman, the President or by any two (2) directors.
Written notice of the time and place of special meetings shall be delivered
personally to each director, or sent to each director by mail or by other form
of written communication, charges prepaid, addressed to him at his address as it
is shown upon the records or is not readily ascertainable, at the place in which
the meetings of the directors are regularly held. In case such notice is mailed
or telegraphed, it shall be deposited in the United States mail or delivered to
the telegraph company at least forty-eight (48) hours prior to the time of the
holding of the meeting. In case such notice is delivered as above provided, it
shall be so delivered at least twenty-four (24) hours prior to the time of the
holding of the meeting. Such mailing, telegraphing or delivery as above provided
shall be due, legal and personal notice to such director.
Section 4.4. Adjournment. Notice of the time and place of holding an
adjourned meeting need not be given to the absent directors if the time and
place be fixed at the meeting adjourned and unless the meeting is adjourned for
more than twenty-four (24) hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting, in the manner specified
in Section 4.3, to the directors who were not present at the time of the
adjournment.
Section 4.5. Validity of Transactions. The transactions of any meeting of
the Board of Directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present, and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, or a consent to holding
such meeting, or an approval of the minutes thereof. All such waivers, consents
or approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 4.6. Quorum. A majority of the authorized number of directors
shall be necessary to constitute a quorum for the transaction of business,
except to adjourn as hereinafter provided. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors, unless a greater
number be required by law or by the Articles of Incorporation. Any action of a
majority, although not at a regularly called meeting, and the record thereof, if
assented to in writing by all of the other members of the Board shall be as
valid and effective in all respects as if passed by the Board in regular
meeting. A quorum of the directors may adjourn any directors meeting to meet
again at a stated day and hour; provided, however, that in the absence of a
quorum, a majority of the directors present at any directors meeting, either
regular or special, may adjourn from time to time until the time fixed for the
next regular meeting of the Board.
Section 4.7. Written Consent. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if a written consent thereto is signed by all members of
the Board of Directors or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board or
committee.
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Section 4.8. Compensation. The directors may be paid their expenses of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings. In addition, directors may be
issued options to purchase Common Stock pursuant to the corporation's Director
Stock Option Plan.
ARTICLE V
Committees of Directors
Section 5.1. Committees. The Board of Directors may, by resolution adopted
by a majority of the whole Board of Directors, designate one or more committees
of the Board of Directors, each committee to consist of one or more of the
directors of the corporation which, to the extent provided in the resolution,
shall have and may exercise the power of the Board of Directors in the
management of the business and affairs of the corporation and may have power to
authorize the seal of the corporation to be affixed to all papers which may
require it. Such committee or committees shall have such name or names as may be
determined from time to time by the Board of Directors. The members of any such
committee present at any meeting and not disqualified from voting may, whether
or not they constitute a quorum, unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any absent or disqualified
member. At meetings of such committees, a majority of the members or alternate
members shall constitute a quorum for the transaction of business, and the act
of a majority of the members or alternate members at any meeting at which there
is a quorum shall be the act of the committee.
Section 5.2. Minutes. The committees shall keep regular minutes
of their proceedings and report the same to the Board of Directors.
Section 5.3. Meeting Authority. Meetings and actions of the committee
shall be governed by, and held and taken in accordance with, the provisions of
Article IV of these Bylaws, Section 4.1 (regular meetings), Section 4.2 (place
of meetings), Section 4.3 (special meetings and notice), Section 4.4
(adjournment and notice of adjournment), Section 4.6 (quorum), Section 4.7
(action without a meeting) and Section 6.2 (waiver of notice), with such changes
in the context of those bylaws as are necessary to substitute the committee and
its members for the Board of Directors and its members, except that the time of
regular meetings of committees may be determined either by resolution of the
Board of Directors or by resolution of the committee; special meetings of
committees may also be called by resolution of the Board of Directors; and
notice of special meetings of committees shall also be given to all alternate
members, who shall have the right to attend all meetings of the committee. The
Board of Directors may adopt rules for the government of any committee not
inconsistent with the provisions of these bylaws.
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ARTICLE VI
Notices
Section 6.1. Notices. Notices to directors and stockholders shall be in
writing and delivered personally or mailed to the directors or stockholders at
their addresses appearing on the books of the corporation. Notice by mail shall
be deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 6.2. Consents. Whenever all parties entitled to vote at any
meeting, whether of directors or stockholders, consent, either by a writing on
the records of the meeting or filed with the secretary, or by presence at such
meeting and oral consent entered on the minutes, or by taking part in the
deliberations at such meeting without objection, the doings of such meeting
shall be as valid as if had at a meeting regularly called and noticed, and at
such meeting any business may be transacted which is not excepted from the
written consent or to the consideration of which no objection for want of notice
is made at the time, and if any meeting be irregular for want of notice or of
such consent, provided a quorum was present at such meeting, the proceedings of
said meeting may be ratified and approved and rendered likewise valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote at such meeting; and such consent or approval of stockholders
may be by proxy or attorney, but all such proxies and powers of attorney must be
in writing.
Section 6.3. Valid Notice. Whenever any notice whatever is required to be
given under the provisions of the statutes, of the Articles of Incorporation or
of these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE VII
Officers
Section 7.1. Required Officers. The officers of the corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. Any person may hold two or more offices.
Section 7.2. Chairman of the Board of Directors. The Board of Directors at
its first meeting after each annual meeting of stockholders shall choose a
Chairman of the Board and a President, both of whom shall be directors, and
shall choose a Secretary and a Treasurer, none of whom need be directors.
Section 7.3. Officers' Powers. The Board of Directors may appoint a
Chairman of the Board, Vice-Chairman of the Board, Vice Presidents and one or
more Assistant Secretaries and Assistant Treasurers and such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Directors.
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Section 7.4. Officers' Compensation. The salaries and compensation of all
officers of the Corporation shall be fixed by the Board of Directors.
Section 7.5. Removal of Officers. The officers of the Corporation shall
hold office at the pleasure of the Board of Directors. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise shall be filled by the Board of Directors. Any
officer may resign at any time by giving written notice to the Corporation.
Section 7.6. Chairman of the Board. The Chairman of the Board shall
preside at meetings of the stockholders and the Board of Directors, and shall
see that all orders and resolutions of the Board of Directors are carried into
effect.
Section 7.7. Vice-Chairman. The Vice-Chairman shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties as the
Board of Directors may from time to time prescribe.
Section 7.8. Chief Executive Officer. The Chief Executive Officer, if any,
shall, subject to the control of the Board of Directors, have active management
of the business of the Corporation. He shall execute on behalf of the
corporation all instruments requiring such execution except to the extent the
signing and execution thereof shall be expressly designated by the Board of
Directors to some other officer or agent of the corporation. The Chief Executive
Officer may appoint such other officers as the business of the Corporation may
require, each of whom shall hold office for such period, have such authority and
perform such duties as are provided in the bylaws or as the Board of Directors
may from time to time determine.
Section 7.9. President. The President shall work with the Chief Executive
Officer, if any, and, subject to the control of the Board of Directors, share in
the active management of the business of the Corporation with the Chief
Executive Officer.
Section 7.10. Vice Presidents. The Vice-President(s) shall act under the
direction of the President and in the absence or disability of the President
shall perform the duties and exercise the powers of the President. They shall
perform such other duties and have such other powers as the President or the
Board of Directors may from time to time prescribe. The Board of Directors may
designate one or more Executive Vice Presidents or may otherwise specify the
order of seniority of the Vice Presidents. The duties and powers of the
President shall descend to the Vice Presidents in such specified order of
seniority.
Section 7.11. Chief Financial Officer. The Chief Financial Officer shall
act in an executive financial capacity. He shall assist the Chairman of the
Board and the President in the general supervision of the Corporation's
financial policies and affairs.
Section 7.12. Secretary. The Secretary shall act under the direction of
the President. Subject to the direction of the President he shall attend all
meetings of the Board of Directors and
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all meetings of the stockholders and record the proceedings. He shall perform
like duties for the standing committees when required. He shall give, or cause
to be given, notice of all meetings of the stockholders and special meetings of
the Board of Directors, and shall perform such other duties as may be prescribed
by the President or the Board of Directors.
Section 7.13. Assistant Secretaries. The Assistant Secretaries shall act
under the direction of the President. In order of their seniority, unless
otherwise determined by the President or the Board of Directors, they shall, in
the absence or disability of the Secretary, perform the duties and exercise the
powers of the Secretary. They shall perform such other duties and have such
other powers as the President or the Board of directors may from time to time
prescribe.
Section 7.14. Treasurer. The Treasurer shall act under the direction of
the President. Subject to the direction of the President he shall have custody
of the corporate funds and securities and shall keep full and accurate accounts
of receipts and disbursements in books belonging to the corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may be ordered by
the President or the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
corporation.
Section 7.15. Assistant Treasurer. The Assistant Treasurer in the order of
their seniority, unless otherwise determined by the President or the Board of
Directors, shall, in the absence or disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer. They shall perform such other
duties and have such other powers as the President or the Board of Directors may
from time to time prescribe.
ARTICLE VIII
Certificates of Stock
Section 8.1. Certification. Every stockholder shall be entitled to have a
certificate signed by the President and the Secretary of the corporation,
certifying the number of shares owned by him, her or it in the corporation. If
the corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the designations, preferences and relative
participating, optional or other special rights of the various classes of stock
or series thereof and the qualifications, limitations or restrictions of such
rights, shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such stock.
Section 8.2. Replaced Certificates. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost or
destroyed upon the making of an affidavit of that
-10-
<PAGE>
fact by the person claiming the certificate of stock to be lost or destroyed.
When authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost or destroyed.
Section 8.3. Certificate Surrender. Upon surrender to the corporation or
the transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation, if it is satisfied that all
provisions of the laws and regulations applicable to the corporation regarding
transfer and ownership of shares have been complied with, to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 8.4. Dividends. The Board of Directors may fix in advance a date
not exceeding sixty (60) days nor less than ten (10) days preceding the date of
any meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining the consent of stockholders for any purpose, as a record date for the
determination of the stockholders entitled to receive payment of any such
dividend, or to give such consent, and in such case, such stockholders, and only
such stockholders as shall be stockholders of record on the date so fixed, shall
be entitled to receive such allotment of rights, or to exercise such rights, or
to give such consent, as the case may be, notwithstanding any transfer of any
stock on the books of the corporation after any such record date fixed as
aforesaid.
Section 8.5. Corporate Registrar. The Corporation shall be entitled to
recognize the person registered on its books as the owner of shares to be the
exclusive owner for all purposes including voting and dividends, and the
Corporation shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Nevada.
ARTICLE IX
RECORDS AND REPORTS
Section 9.1. Stock Ledger. The Corporation shall either maintain at its
principal office a record of its stockholders, giving the names and addresses of
all stockholders and the number and class of shares held by each stockholder, or
in lieu thereof maintain at its principal office a statement setting out the
name of the custodian of the stock ledger.
Section 9.2. Accounting Books and Records. The accounting books and
records and minutes of proceedings of the stockholders and the Board of
Directors and any committee or committees of the Board of Directors shall be
kept at such place or places designated by the
-11-
<PAGE>
Board of Directors. The minutes, accounting books, and the records shall be kept
either in written form or in any other form capable of being converted into
written form. Subject to NRS 78.257, as amended, the minutes and accounting
books and records shall be open to inspection by the stockholders.
Section 9.3. Inspection. Every director shall have the absolute right at
any reasonable time to inspect all books, records, and documents of every kind,
and the physical properties of the Corporation and each of its subsidiary
corporations. This inspection by a director may be made in person or by an agent
or attorney, and the right of inspection includes the right to copy and make
extracts of documents.
ARTICLE X
General Provisions
Section 10.1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the Articles of Incorporation, if any,
may be declared by the Board of Directors at any regular or special meeting.
Dividends may be paid in cash, in property or in shares of capital stock,
subject to the provisions of the Articles of Incorporation. Before payment of
any dividend, there may be set aside out of any funds of the corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends or for repairing or maintaining any
property of the corporation or for such other purpose as the directors shall
think conducive to the interest of the corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
Section 10.2. Checks or Demands. All checks or demands for money and notes
of the corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
Section 10.3. Fiscal Year. The fiscal year of the corporation shall be the
calendar year, unless otherwise fixed by a resolution of the Board of Directors
of the corporation.
Section 10.4. Seal. The corporation shall adopt a corporate seal and have
inscribed thereon the name of the corporation and the words "Corporate Seal" and
"Nevada." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
Section 10.5. Authority. The Chairman of the Board, the President or any
other person authorized by resolution of the Board of Directors or by any of the
foregoing designated officers, is authorized to vote on behalf of the
Corporation any and all shares of any other corporation or corporations, foreign
or domestic, standing in the name of the Corporation. The authority granted to
these officers to vote or represent on behalf of the Corporation any and all
shares held by the Corporation in any other corporation or corporations may be
exercised by any of these
-12-
<PAGE>
officers in person or by any person authorized to do so by a proxy duly executed
by the Chairman or the President.
Section 10.6. Governing Law. Unless the context requires otherwise, the
general provisions, rules of construction, and definitions in the Nevada Revised
Statutes shall govern the construction of these Bylaws. Without limiting the
generality of these provisions, the singular number includes the plural, the
plural number includes the singular, and the term "person" includes both the
Corporation and a natural person.
ARTICLES XI
Amendments
Section 11.1. Amendment by Stockholders. The Bylaws may be amended by a
two-thirds (2/3) vote of all the stock issued and outstanding and entitled to
vote at any annual or special meeting of the stockholders, provided notice of
intention to amend shall have been contained in the notice of the meeting.
Section 11.2. Amendment by Board of Directors. The Board of Directors by a
majority vote of the whole Board at any meeting may amend these Bylaws,
including Bylaws adopted by the stockholders, but the stockholders may from time
to time specify particular provisions of the Bylaws which shall not be amended
by the Board of Directors.
ARTICLE XII
Indemnification
Section 12. Indemnification. Every person who was or is a party or is
threatened to be a party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she or a person of whom he or she is the legal representative is or
was a director, officer, legal spouse (whether such status is derived by reason
of statutory law, common law or otherwise of any applicable jurisdiction) of a
director or officer, employee, agent, or other person of this corporation, or is
or was serving at the request of this corporation or for its benefit as a
director, officer, employee or other person of another corporation, partnership,
joint venture, trust or other enterprise, shall be indemnified and held harmless
to the fullest extent legally permissible under the law of the state of Nevada
as it may be amended from time to time against all expenses, liability and loss
(including attorneys' fees, judgments, fines and amounts paid or to be paid in
settlement) reasonably incurred or suffered by him or her in connection
therewith. The indemnification of a legal spouse of a director or officer shall
not extend to any claim for any actual or alleged wrongful act of the spouse,
but shall apply only to actual or alleged wrongful acts of a director or officer
as provided in this Article. The expenses of a director, officer or legal spouse
of a director or officer, incurred in defending a civil or criminal action, suit
or
-13-
<PAGE>
proceeding must be paid by this corporation as they are incurred and in advance
of the final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director, officer, or legal spouse of a
director or officer, to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he or she is not entitled to be indemnified
by this corporation. Such right of indemnification shall be a contract right
which may be enforced in any manner desired by such person. Such right of
indemnification shall not be exclusive of any other right which such a director,
officer, legal spouse of a director or officer, agent or other person may have
or hereafter acquire and, without limiting the generality of such statement,
they shall be entitled to their respective rights of indemnification under the
Articles of Incorporation, any agreement, vote of stockholders, provision of law
or otherwise, as well as their rights under this Article.
Without limiting the application of the foregoing, the Board of Directors
may cause this corporation to purchase and maintain insurance on behalf of any
person who is or was a director, officer, legal spouse of a director or officer,
employee, agent or other person of this corporation or is or was serving at the
request of this corporation as a director, officer, employee, agent or other
person of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and incurred in
any such capacity or arising out of such status, whether or not this corporation
would have the power to indemnify such person.
APPROVED AND ADOPTED this 28th day of March 2000.
CERTIFICATE OF SECRETARY
I hereby certify that I am the Secretary of eRoom System Technologies,
Inc. and that the foregoing Bylaws, consisting of 14 pages, constitute the Code
of Bylaws of eRoom System Technologies, Inc. as duly adopted and amended by
resolution of the Board of Directors of eRoom System Technologies, Inc. dated
this 28th day of March 2000.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 28th day of
March 2000.
/s/
---------------------------------------------
Gregory L. Hrncir, Secretary
-14-
<PAGE>
Exhibit 4.01
COMMON STOCK COMMON STOCK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER SHARES
- --------------------------------------------------------------------------------
RT eROOM SYSTEM TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF NEVADA CERTAIN DEFINITIONS
CUSIP 296016 10 8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the record holder of
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.001 PER SHARE,
OF
- --------------------------------------------------------------------------------
eRoom System Technologies, Inc.
- --------------------------------------------------------------------------------
transferable on the books of the Corporation by the registered holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed and upon payment of any applicable taxes. This Certificate is
not valid unless countersigned and registered by the Transfer Agent and
Registrar.
- --------------------------------------------------------------------------------
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
- --------------------------------------------------------------------------------
eRoom System Technologies, Inc.
- --------------------------------------------------------------------------------
Dated:
- --------------------------------------------------------------------------------
eROOM SYSTEM TECHNOLOGIES, INC..
CORPORATE
SEAL
NEVADA
SECRETARY CHAIRMAN OF THE BOARD
- --------------------------------------------------------------------------------
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY AUTHORIZED SIGNATURE
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY
NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES FILED UNDER THE
ACT, OR ANY EXEMPTION FROM REGISTRATION, AND COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS. THE ISSUER MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER THEREOF THAT SUCH REGISTRATIONS NOT REQUIRED AND THAT SUCH LAWS ARE
COMPLIED WITH.
The Corporation will furnish to any stockholder, upon request and without
charge, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications. limitations or restrictions of such
preferences and /or rights, so far as the same shall have been fixed, and of
the authority of the Board of Directors to designate and fix any preferences,
rights and limitations of any wholly unissued series. Any such request should
be addresses to the Secretary of the Corporation at its corporate
headquarters.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
---------------------------------------------------------------------------------------------------
TEN COM -as tenants in common UNIF GIFT MIN ACT Custodian
---------------------------------------------------------------------------------------------------
TEN ENT -as tenants by the entireties (Cust) (Minor)
---------------------------------------------------------------------------------------------------
JT TEN -as joint tenants under Uniform Gifts to Minors
with right of --------------------------------------------------------
survivorship and Act
not as tenants --------------------------------------------------------
in common (State)
---------------------------------------------------------------------------------------------------
UNIF TRF MIN ACT Custodian (until age)
---------------------------------------------------------------------------------------------------
(Cust)
---------------------------------------------------------------------------------------------------
under Uniform Transfers
---------------------------------------------------------------------------------------------------
(Minor)
---------------------------------------------------------------------------------------------------
to Minors Act
---------------------------------------------------------------------------------------------------
(State)
---------------------------------------------------------------------------------------------------
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR THE VALUE RECEIVED, ___________________hereby sell, assign and transfer unto
----------------------------------------
PLEASE INSERT SOCIAL SECURITY OR
OTHER
IDENTIFYING NUMBER OF ASSIGNEE
----------------------------------------
------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby
irrevocable constitute and appoint
Attorney
------------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________
X_______________________________
X_______________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
-----------------------------------------------
By
-----------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
-----------------------------------------------
<PAGE>
Exhibit 4.02
PREFERRED STOCK PREFERRED STOCK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER SHARES
- --------------------------------------------------------------------------------
RA eROOM SYSTEM TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF NEVADA CERTAIN DEFINITIONS
CUSIP 296016 20 7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the record holder of
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.001 PER SHARE, OF
- --------------------------------------------------------------------------------
eRoom System Technologies, Inc.
- --------------------------------------------------------------------------------
transferable on the books of the Corporation by the registered holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed and upon payment of any applicable taxes. This Certificate is
not valid unless countersigned and registered by the Transfer Agent and
Registrar.
- --------------------------------------------------------------------------------
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated:
- --------------------------------------------------------------------------------
eROOM SYSTEM TECHNOLOGIES, INC..
CORPORATE
SEAL
NEVADA
SECRETARY CHAIRMAN OF THE BOARD
- --------------------------------------------------------------------------------
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY AUTHORIZED SIGNATURE
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY
NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES FILED UNDER THE
ACT, OR ANY EXEMPTION FROM REGISTRATION, AND COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS. THE ISSUER MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER THEREOF THAT SUCH REGISTRATIONS NOT REQUIRED AND THAT SUCH LAWS ARE
COMPLIED WITH.
The Corporation will furnish to any stockholder, upon request and without
charge, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications. limitations or restrictions of such
preferences and /or rights, so far as the same shall have been fixed, and of
the authority of the Board of Directors to designate and fix any preferences,
rights and limitations of any wholly unissued series. Any such request should
be addresses to the Secretary of the Corporation at its corporate
headquarters.
Notice of Election to Convert
The undersigned hereby irrevocably exercises the rights to convert shares of
Series A Convertible Preferred Stock represented by this Certificate into
Common Stock of eRoom System Technologies, Inc. in accordance with the terms
of the Series A Convertible Preferred Stock relating thereto.
Date: __________________________ Signature(s)________________________________
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
---------------------------------------------------------------------------------------------------
TEN COM -as tenants in common UNIF GIFT MIN ACT Custodian
---------------------------------------------------------------------------------------------------
TEN ENT -as tenants by the entireties (Cust) (Minor)
---------------------------------------------------------------------------------------------------
JT TEN -as joint tenants under Uniform Gifts to Minors
with right of --------------------------------------------------------
survivorship and Act
not as tenants --------------------------------------------------------
in common (State)
---------------------------------------------------------------------------------------------------
UNIF TRF MIN ACT Custodian (until age)
---------------------------------------------------------------------------------------------------
(Cust)
---------------------------------------------------------------------------------------------------
under Uniform Transfers
---------------------------------------------------------------------------------------------------
(Minor)
---------------------------------------------------------------------------------------------------
to Minors Act
---------------------------------------------------------------------------------------------------
(State)
---------------------------------------------------------------------------------------------------
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR THE VALUE RECEIVED, ___________________hereby sell, assign and transfer unto
----------------------------------------
PLEASE INSERT SOCIAL SECURITY OR
OTHER
IDENTIFYING NUMBER OF ASSIGNEE
----------------------------------------
------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby
irrevocable constitute and appoint
Attorney
------------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________
X_______________________________
X_______________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
-----------------------------------------------
2
<PAGE>
By
-----------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
-----------------------------------------------
3
<PAGE>
Exhibit 4.03
PREFERRED STOCK PREFERRED STOCK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER SHARES
- --------------------------------------------------------------------------------
RB eROOM SYSTEM TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF NEVADA CERTAIN DEFINITIONS
CUSIP 296016 30 6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the record holder of
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.001 PER SHARE, OF
- --------------------------------------------------------------------------------
eRoom System Technologies, Inc.
- --------------------------------------------------------------------------------
transferable on the books of the Corporation by the registered holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed and upon payment of any applicable taxes. This Certificate is
not valid unless countersigned and registered by the Transfer Agent and
Registrar.
- --------------------------------------------------------------------------------
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated:
- --------------------------------------------------------------------------------
eROOM SYSTEM TECHNOLOGIES, INC..
CORPORATE
SEAL
NEVADA
SECRETARY CHAIRMAN OF THE BOARD
- --------------------------------------------------------------------------------
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY AUTHORIZED SIGNATURE
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY
NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES FILED UNDER THE
ACT, OR ANY EXEMPTION FROM REGISTRATION, AND COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS. THE ISSUER MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER THEREOF THAT SUCH REGISTRATIONS NOT REQUIRED AND THAT SUCH LAWS ARE
COMPLIED WITH.
The Corporation will furnish to any stockholder, upon request and without
charge, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications. limitations or restrictions of such
preferences and /or rights, so far as the same shall have been fixed, and of
the authority of the Board of Directors to designate and fix any preferences,
rights and limitations of any wholly unissued series. Any such request should
be addresses to the Secretary of the Corporation at its corporate
headquarters.
Notice of Election to Convert
The undersigned hereby irrevocably exercises the rights to convert shares of
Series A Convertible Preferred Stock represented by this Certificate into
Common Stock of eRoom System Technologies, Inc. in accordance with the terms
of the Series B Convertible Preferred Stock relating thereto.
Date: __________________________ Signature(s)________________________________
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
---------------------------------------------------------------------------------------------------
TEN COM -as tenants in common UNIF GIFT MIN ACT Custodian
---------------------------------------------------------------------------------------------------
TEN ENT -as tenants by the entireties (Cust) (Minor)
---------------------------------------------------------------------------------------------------
JT TEN -as joint tenants under Uniform Gifts to Minors
with right of --------------------------------------------------------
survivorship and Act
not as tenants --------------------------------------------------------
in common (State)
---------------------------------------------------------------------------------------------------
UNIF TRF MIN ACT Custodian (until age)
---------------------------------------------------------------------------------------------------
(Cust)
---------------------------------------------------------------------------------------------------
under Uniform Transfers
---------------------------------------------------------------------------------------------------
(Minor)
---------------------------------------------------------------------------------------------------
to Minors Act
---------------------------------------------------------------------------------------------------
(State)
---------------------------------------------------------------------------------------------------
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR THE VALUE RECEIVED, ___________________hereby sell, assign and transfer unto
----------------------------------------
PLEASE INSERT SOCIAL SECURITY OR
OTHER
IDENTIFYING NUMBER OF ASSIGNEE
----------------------------------------
------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Shares
------------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do hereby
irrevocable constitute and appoint
Attorney
------------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________
X_______________________________
X_______________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
-----------------------------------------------
2
<PAGE>
By
-----------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
-----------------------------------------------
3
<PAGE>
Exhibit 4.04
PREFERRED STOCK PREFERRED STOCK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER SHARES
- --------------------------------------------------------------------------------
RC eROOM SYSTEM TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF NEVADA CERTAIN DEFINITIONS
CUSIP 296016 40 5
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the record holder of
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF SERIES C CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.001 PER SHARE, OF
- --------------------------------------------------------------------------------
eRoom System Technologies, Inc.
- --------------------------------------------------------------------------------
transferable on the books of the Corporation by the registered holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed and upon payment of any applicable taxes. This Certificate is
not valid unless countersigned and registered by the Transfer Agent and
Registrar.
- --------------------------------------------------------------------------------
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated:
- --------------------------------------------------------------------------------
eROOM SYSTEM TECHNOLOGIES, INC..
CORPORATE
SEAL
NEVADA
SECRETARY CHAIRMAN OF THE BOARD
- --------------------------------------------------------------------------------
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY AUTHORIZED SIGNATURE
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE SECURITIES LAWS AND MAY
NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES FILED UNDER THE
ACT, OR ANY EXEMPTION FROM REGISTRATION, AND COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS. THE ISSUER MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER THEREOF THAT SUCH REGISTRATIONS NOT REQUIRED AND THAT SUCH LAWS ARE
COMPLIED WITH.
The Corporation will furnish to any stockholder, upon request and without
charge, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications. limitations or restrictions of such
preferences and /or rights, so far as the same shall have been fixed, and of
the authority of the Board of Directors to designate and fix any preferences,
rights and limitations of any wholly unissued series. Any such request should
be addresses to the Secretary of the Corporation at its corporate
headquarters.
Notice of Election to Convert
The undersigned hereby irrevocably exercises the rights to convert shares of
Series A Convertible Preferred Stock represented by this Certificate into
Common Stock of eRoom System Technologies, Inc. in accordance with the terms
of the Series C Convertible Preferred Stock relating thereto.
Date: __________________________ Signature(s)________________________________
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
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TEN COM -as tenants in common UNIF GIFT MIN ACT Custodian
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TEN ENT -as tenants by the entireties (Cust) (Minor)
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JT TEN -as joint tenants under Uniform Gifts to Minors
with right of --------------------------------------------------------
survivorship and Act
not as tenants --------------------------------------------------------
in common (State)
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UNIF TRF MIN ACT Custodian (until age)
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(Cust)
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under Uniform Transfers
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(Minor)
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to Minors Act
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(State)
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</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR THE VALUE RECEIVED, ___________________hereby sell, assign and transfer unto
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PLEASE INSERT SOCIAL SECURITY OR
OTHER
IDENTIFYING NUMBER OF ASSIGNEE
----------------------------------------
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(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
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------------------------------------------------------------------------------
Shares
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of the Common Stock represented by the within Certificate, and do hereby
irrevocable constitute and appoint
Attorney
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to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated_________________________
X_______________________________
X_______________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
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2
<PAGE>
By
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THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
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3
<PAGE>
EXHIBIT 10.1
eROOM SYSTEM TECHNOLOGIES, INC.
2000 STOCK OPTION AND INCENTIVE PLAN
As adopted by the Board of Directors on FEBRUARY 3, 2000
1. PURPOSE
The purpose of this eRoom System Technologies, Inc. 2000 Stock Option and
Incentive Plan (this "Plan") is to further the interests of the Company, by
providing selected employees, directors, independent contractors and advisors,
upon whose judgment, initiative and effort the Company is largely dependent for
the successful conduct of its business, the opportunity to participate in a
stock option and incentive plan designed to reward them for their services and
to encourage them to continue in the employee or service of the Company. This
Plan provides for both the direct award or sale of Shares and for the grant of
Options to purchase Shares. Options granted under this Plan may include
Nonstatutory Options as well as Incentive Options intended to qualify under
Section 422 of the Code.
2. DEFINITIONS
For all purposes of this Plan, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company, as
constituted from time to time.
(b) "Change in Control" shall mean the occurrence of either of the
following events: (i) any "person" (as that term is used in Section 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing [20%] or more of the combined voting power of the Company's
then outstanding securities ordinarily having the right to vote at the election
of directors; or (ii) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by at least a majority of the then remaining
directors comprising the Incumbent Board, or whose nomination or election was
approved by a majority of the board of directors of the Company serving under an
Incumbent Board, shall be, for purposes of this clause (ii), considered as if he
or she were a member of the Incumbent Board; or (iii) the approval by the
Company's stockholders of the merger or consolidation of the Company with any
other corporation or business organization, the sale of all or substantially all
the assets of the Company, or the liquidation or dissolution of the Company; or
(iv) a proxy statement is distributed soliciting proxies from the stockholders
of the Company seeking stockholder approval of a plan of reorganization, merger
or consolidation of the Company with one or more corporations, as a result of
which the outstanding shares of the Company's securities are actually exchanged
for or converted into cash or property or securities not issued by the Company;
or (v) at least a majority of the Incumbent Board who are in office immediately
prior to any action proposed to be taken by the Company determine that such
proposed action, if taken, would constitute a change of control of the Company
and such action is taken. For purposes of Subsection 2(b)(i) only, the term
"person" shall not include Steven L. Sunyich or his immediate family or any of
their affiliates, or any employee benefit plan maintained by the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended,
together with the regulations promulgated thereunder.
<PAGE>
(d) "Committee" shall mean the committee designated by the Board, which is
authorized to administer this Plan in accordance with Section 3 hereof. The
Committee shall be composed solely of two or more Non-Employee Directors and
otherwise have such membership composition which enables the Options or other
rights granted under this Plan to qualify for exemption under Rule 16b-3 with
respect to persons who are subject to Section 16 of the Exchange Act. Each
member of the Committee shall serve at the pleasure of the Board. If no
Committee is designated by the Board, the Board collectively shall act as the
Committee and administer this Plan.
(e) "Common Stock" shall mean the Company's common stock, $.001 par value.
(f) "Company" shall mean eRoom System Technologies, Inc., a Nevada
corporation.
(g) "Employee" shall mean any individual who is a full-time employee of
the Company or a Subsidiary.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor rule.
(i) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
Option Grant.
(j) "Fair Market Value" shall mean (i) the closing price of a Share on the
principal exchange (including the Nasdaq National Market or a successor
quotation system) on which Common Stock is trading or quoted, on the date on
which the Fair Market Value is determined (if Fair Market Value is determined on
a date which the principal exchange is closed, Fair Market Value shall be
determined on the last immediately preceding trading day), or (ii) if Common
Stock is not traded on an exchange or quoted on the Nasdaq National Market or a
successor quotation system, the fair market value of a Share as determined by
the Committee in good faith. Notwithstanding any provision of this Plan to the
contrary, no determination made with respect to the Fair Market Value of a Share
subject to an Incentive Option shall be inconsistent with Section 422 of the
Code.
(k) "Immediate Family" shall mean, with respect to a particular Optionee,
the Optionee's spouse, children or grandchildren (including adopted and step
children and grandchildren).
(l) "Incentive Option" shall mean an option granted under this Plan which
is designated and qualified as an incentive stock option within the meaning of
Section 422 of the Code.
(m) "Non-Employee Director" shall have the meaning set forth in Rule 16b-3
promulgated by the Securities and Exchange Commission pursuant to the Exchange
Act.
(n) "Nonstatutory Option" shall mean an option (or warrant for any person
other than an Employee or Non-Employee Director) granted under this Plan which
is designated as a non-qualified stock option and which does not qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(o) "Offeree" shall mean any person who has been offered the right to
acquire Shares under this Plan (other than upon exercise of an Option).
(p) "Option" shall mean an Incentive Option or a Nonstatutory Option.
PAGE 2 OF 12
<PAGE>
(q) "Option Grant" shall mean the written instrument which contains the
terms, conditions and restrictions pertaining to each Option granted to an
Optionee.
(r) "Optionee" shall mean any person who has been granted an Option under
this Plan.
(s) "Permanent Disability" shall mean a permanent and total disability
within the meaning of Section 22(e)(3) of the Code.
(t) "Plan" shall mean this RoomSystem Technologies, Inc. 2000 Stock Option
and Incentive Plan, as amended from time to time.
(u) "Purchase Price" shall mean the consideration for which one Share may
be acquired under this Plan (other than upon exercise of an Option), as
specified by the Committee.
(v) "Relationship" shall mean any individual who is (i) an Employee of the
Company or a Subsidiary, (ii) a member of the Board, or (iii) an independent
contractor or advisor who performs services for the Company or a Subsidiary.
(w) "Share" shall mean one share of Common Stock, as adjusted in
accordance with Section 9 (if applicable).
(x) "Share Award" shall mean the written instrument which contains the
terms, conditions and restrictions pertaining to each award or sale of Shares to
an Offeree.
(y) "Subsidiary" shall mean any company or entity of which the Company
owns, directly or indirectly, the majority of the combined voting power of all
classes of stock.
(z) "Termination for Cause" shall mean the termination of the employment
or service of an individual with the Company, whether voluntary or involuntary,
that is determined by the Committee, in its sole discretion, to have resulted
from (i) the unauthorized use or disclosure of the confidential information or
trade secretes of the Company, which use or disclosure causes harm to the
Company, (ii) the conviction of, or plea of "guilty" or "no contest" to, a
felony under the laws of the United States or any state thereof, (iii) gross
negligence, or (iv) continued failure to perform assigned duties after receiving
written notification from the Board. The foregoing, however, shall not be deemed
to be an exclusive list of all acts or omissions that the Committee may consider
as grounds for Termination for Cause.
3. ADMINISTRATION
(a) Committee Procedures. The Board of Directors shall designate one of
the members of the Committee as chairman. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.
(b) Committee Responsibilities. Subject to the provisions of this Plan,
the Committee shall have full authority and discretion to take the following
actions:
(i) To interpret this Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating
to this Plan;
PAGE 3 OF 12
<PAGE>
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of this Plan;
(iv) To determine when Shares are to be awarded or offered for sale
and when Options are to be granted under this Plan;
(v) To select the Offerees and Optionees;
(vi) To determine the number of Shares to be offered to each Offeree
or to be made subject to each Option;
(vii) To prescribe the terms, restrictions and conditions of each
award or sale of Shares, including, without limitation, the Purchase Price
and the vesting of the award (including accelerating the vesting of
awards);
(viii) To prescribe the terms, restrictions and conditions of each
Option, including, without limitation, the Exercise Price and the vesting
or duration of the Option (including accelerating the vesting of the
Option), and to determine whether such Option is to be classified as an
Incentive Option or as a Nonstatutory Option;
(ix) To amend any outstanding Share Award or Option Grant, subject
to the limitations of this Plan;
(x) To correct any defect, supply any omission, or reconcile any
inconsistency in this Plan or any Option or other right granted under this
Plan; and
(xi) To take any other actions or make any other determinations or
interpretations deemed necessary or advisable for the administration of
this Plan.
(c) Indemnification. No member of the Committee shall be liable for any
action that he has taken or has failed to take in good faith with respect to
this Plan, any Option, or any right to acquire Shares under this Plan. Service
on the Committee shall constitute service as a director of the Company so that a
member of the Committee shall be entitled to indemnification and reimbursement
as a director of the Company to the full extent allowable under its governing
instruments and applicable law.
(d) Other. Subject to the requirements of applicable law, the Committee
may designate persons other than members of the Committee to carry out its
responsibilities and may prescribe such conditions and limitations as it may
deem appropriate, except that the Committee may not delegate its authority with
regard to the selection for participation of or the granting of Options or other
rights under this Plan to persons subject to Section 16 of the Exchange Act. All
decisions, interpretations and other actions of the Committee shall be final and
binding on all Offerees, all Optionees, and all persons deriving their rights
from an Offeree or Optionee.
4. ELIGIBILITY
(a) General Rule. Nonstatutory Options may be granted to any individual
who has a Relationship with the Company or a Subsidiary. Incentive Options may
be granted to any Employee of the Company or a Subsidiary.
(b) Non-Employee Directors. Notwithstanding any provision of this Plan to
the contrary, the participation of Non-Employee Directors in this Plan shall be
subject to the following restrictions:
PAGE 4 OF 12
<PAGE>
(i) Non-Employee Directors shall only be eligible for the grant of
Nonstatutory Options as described in this Section 4(b);
(ii) Each Non-Employee Director shall automatically be granted a
Nonstatutory Option to purchase 5,000 Shares (subject to adjustment
under Section 9) as a result of their appointment as an Non-Employee
Director [on, or after, the effectiveness of the Company's initial public
offering of Common Stock.] In addition, upon the conclusion of each
regular annual meeting of the Company's stockholders occurring after 2000
and following the meeting at which they were appointed, each Non-Employee
Director who continues serving as a member of the Board thereafter shall
receive a Nonstatutory Option to purchase 5,000 Shares (subject to
adjustment under Section 9). All such Nonstatutory Options shall vest and
become exercisable at the date of grant;
(iii) The Exercise Price of all Nonstatutory Options granted to a
Non-Employee Director under this Section 4(b) shall be equal to 100
percent of the Fair Market Value of a Share on the date of grant, payable
in one of the forms described in Sections 8(a), (b) and (d); and
(iv) All Nonstatutory Options granted to a Non-Employee Director
under this Section 4(b) shall terminate on the earliest of (A) the tenth
anniversary of the date of grant of such Options or (B) the date twelve
months after the termination of such Non-Employee Director's service for
any reason.
(c) Limitation on Grants. No Optionee shall be granted Options to purchase more
than 100,000 Shares in any fiscal year of the Company.
(d) Ten-Percent Stockholders. An Employee who owns more than ten percent of the
total combined voting power of all classes of outstanding stock of the Company
or any of its Subsidiaries shall not be eligible for the grant of an Incentive
Option unless such grant satisfies the requirements of Section 422(c)(6) of the
Code.
(e) Attribution Rules. For purposes of Subsection (d) above, in determining
stock ownership, an Employee shall be deemed to own the stock owned, directly or
indirectly, by or for his brothers, sisters, spouse, ancestors and lineal
descendants. Stock owned, directly or indirectly, by or for a company,
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its members, shareholders, partners or beneficiaries.
(f) Outstanding Stock. For purposes of Subsection (d) above, "outstanding stock"
shall include all stock actually issued and outstanding immediately after the
grant. "Outstanding stock" shall not include shares authorized for issuance
under outstanding options held by the Employee or by any other person.
5. STOCK SUBJECT TO THIS PLAN
(a) Basic Limitation. Shares offered under this Plan shall be authorized but
unissued Shares or treasury Shares. Two million (2,000,000) Shares have been
reserved for issuance under this Plan (upon exercise of Options or other
rights to acquire Shares). The aggregate number of Shares which may be issued
under this Plan shall at all times be subject to adjustment pursuant to
Section 9. The number of Shares which are subject to Options or other rights
outstanding at any time under this Plan shall not exceed the number of Shares
which then remain available for issuance under this Plan. The Company, during
the term of this Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of this Plan.
PAGE 5 OF 12
<PAGE>
(b) Additional Shares. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of this Plan. If Shares are forfeited before any
dividends have been paid with respect to the Shares, then such Shares shall
again be available for award or sale under this Plan.
6. TERMS AND CONDITIONS OF OPTIONS
(a) Option Grant. Each grant of an Option under this Plan shall be
evidenced by an Option Grant approved by the Committee. Such Option shall be
subject to all applicable terms and conditions of this Plan and may be subject
to any other terms and conditions which are not inconsistent with this Plan and
which the Committee deems appropriate for inclusion in an Option Grant. The
provisions of the various Option Grants entered into under this Plan need not be
identical. In no event shall the aggregate fair market value (determined as of
the time the Incentive Option is granted) of the Shares with respect to which
Incentive Options (granted under this Plan or any other plans of the Company)
are exercisable for the first time by an Optionee in any calendar year exceed
$100,000. No Incentive Option shall be granted pursuant to this Plan after ten
years from the earlier of the date of adoption of this Plan by the Board or the
date of approval of this Plan by the Company's stockholders.
(b) Number of Shares. Each Option Grant shall specify the number of Shares
that are subject to the Option. The Option Grant shall also specify whether the
Option is a Nonstatutory Option or an Incentive Option.
(c) Exercise Price. Each Option Grant shall specify the Exercise Price.
The Exercise Price of an Incentive Option shall not be less than 100 percent of
the Fair Market Value of a Share on the date of grant, except as otherwise
provided in Section 4(d). Subject to the preceding sentence, the Exercise Price
under any Option shall be determined by the Committee at its sole discretion.
The Exercise Price shall be payable in one or the forms described in Sections
8(a), (b) and (d).
(d) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state or local withholding tax obligations that may arise in connection with the
disposition of Shares acquired by exercising an Option.
(e) Exercisability and Term. Each Option Grant shall specify the date when
all or any installment of the Option is to become exercisable. The Option Grant
shall also specify the term of the Option. The term shall not exceed ten years
from the date of grant (five years for Employees described in Section 4(d)).
Subject to the preceding three sentences, the Committee at its sole discretion
shall determine when all or any installment of an Option is to become
exercisable and when an Option is to expire. [Notwithstanding anything to the
contrary herein, no Option will be exercisable (and any attempted exercise will
be deemed null and void) if such exercise would create a right of recovery for
"short-swing profits" under Section 16(b) of the Exchange Act. This Section
6(e)(ii) is intended to protect persons subject to Section 16(b) against
inadvertent violations of Section 16(b) and shall not apply with respect to any
particular exercise of an Option if this Section 6(e)(ii) is expressly waived in
writing by the Optionee at the time of such exercise.]
(f) Termination of Relationship. Except as the Committee may otherwise
determine at any time with respect to any particular Nonstatutory Option granted
hereunder:
PAGE 6 OF 12
<PAGE>
(i) If an Optionee ceases to have a Relationship for any
reason other than his death or Permanent Disability, any Options
granted to him shall terminate ninety days from the date on which
such Relationship terminates. During the ninety day period, the
Optionee may exercise any Option granted to him but only to the
extent such Option was exercisable on the date of termination of his
Relationship and provided that such Option has not previously
expired by its own terms or otherwise terminated as provided herein.
A leave of absence approved in writing by the Committee shall not be
deemed a termination of Relationship for purposes of this Section
6(f), but no Option may be exercised during any such leave of
absence, except during the first ninety days thereof.
(ii) For purposes hereof, termination of an Optionee's
Relationship for reasons other than death or Permanent Disability
shall be deemed to take place upon the earliest to occur of the
following: (w) the date of the Optionee's retirement from employment
under the normal retirement policies of the Company; (x) the date of
the Optionee's retirement from employment with the approval of the
Committee because of disability (other than Permanent Disability);
(y) the date the Optionee receives notice or advice that his
employment or other Relationship is terminated; or (z) the date the
Optionee ceases to render the services which he was employed,
engaged or retained to render to the Company (absences for temporary
illness, emergencies and vacations or leaves of absence approved in
writing by the Committee excepted). The fact that the Optionee may
receive payment from the Company after termination for vacation pay,
for services rendered prior to termination, for salary in lieu of
notice or for other benefits shall not affect the termination date.
(iii) Notwithstanding anything in this Plan to the contrary,
no Option may be exercised or claimed by Optionee following the
termination of his Relationship as a result of a Termination for
Cause, and no Option may be exercised or claimed while the Optionee
is being investigated for a Termination for Cause.
(g) Death or Permanent Disability of Optionee. Except as the Committee may
otherwise determine at any time with respect to any particular Nonstatutory
Option granted hereunder, if an Optionee shall die at a time when he is in a
Relationship or if the Optionee shall cease to have a Relationship by reason of
Permanent Disability, any Options granted to him shall terminate one year after
the date of his death or termination of Relationship due to Permanent Disability
unless by its terms it shall expire before such date or otherwise terminate
earlier as provided herein, and shall only be exercisable to the extent that it
would have been exercisable on the date of his death or his termination of
Relationship due to Permanent Disability. In the case of death, the Option may
be exercised by the person or persons to whom the Optionee's rights under the
Option shall pass by will or by the laws of descent and distribution.
(h) Privileges of Stock Ownership. No person entitled to exercise any
Option granted under this Plan shall have any of the rights or privileges of a
stockholder of the Company with respect to any Shares issuable upon exercise of
such Option until such person has become the holder of record of such Shares. No
adjustment shall be made for dividends or distributions of rights in respect of
such Shares if the record date is prior to the date on which such person becomes
the holder of record, except as provided in Section 9 hereof.
(i) Modification, Extension and Renewal of Options. The Committee may
amend, modify, extend or renew outstanding Options or may accept the
cancellation of outstanding Options (to the extent not previously exercised),
whether or not granted hereunder, in return for the grant of new Options at the
same or a different price. The Committee may shorten the vesting period, extend
the exercise period or remove any or all restrictions if, in its sole
discretion, the Committee determines that such action is in the
PAGE 7 OF 12
<PAGE>
best interests of the Company and equitable to the Optionee. The foregoing
notwithstanding, no amendment or modification of an Option shall, without the
consent of the holder of such Option, materially and adversely impair his rights
or increase his obligations under such Option.
(j) Restrictions on Transfer of Shares. Any Shares issued upon exercise of
an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Option Grant and shall apply in addition to any general restrictions that may
apply to all holders of Shares. Each certificate representing any Shares issued
upon exercise of an Option shall bear a legend making appropriate reference to
the restrictions imposed on the Shares.
7. TERMS AND CONDITIONS OF AWARDS OR SALES
(a) Share Award. Each award or sale of Shares under this Plan (other than
upon exercise of an Option) shall be evidenced by a Share Award approved by the
Committee. Such award or sale shall be subject to all applicable terms and
conditions of this Plan and may be subject to any other terms and conditions
which are not inconsistent with this Plan and which the Committee deems
appropriate for inclusion in a Share Award. The provisions of the various Share
Awards entered into under this Plan need not be identical.
(b) Duration of Offers and Nontransferability of Rights. Any right to
acquire Shares under this Plan (other than an Option) shall automatically expire
if not exercised by the Offeree within thirty days after the grant of such right
was communicated to the Offeree by the Committee. Such right shall not be
transferable and shall be exercisable only by the Offeree to whom such right was
granted.
(c) Purchase Price. The Purchase Price shall be determined by the
Committee at its sole discretion. The Purchase Price shall be payable in one of
the forms described in Sections 8(a), (b) or (c).
(d) Withholding Taxes. As a condition to the receipt or purchase of
Shares, the Offeree shall make such arrangements as the Committee may require
for the satisfaction of any federal, state or local withholding tax obligations
that may arise in connection with a recognition of income from such Shares
(either on the date of grant or the date the restrictions lapse).
(e) Modification of Share Awards. The Committee may amend or modify any
outstanding Share Awards. The Committee may shorten the vesting period or remove
any or all restrictions if, in its sole discretion, the Committee determines
that such action is in the best interests of the Company and equitable to the
Offeree. The foregoing notwithstanding, no amendment or modification of a Share
Award shall, without the consent of the holder of such Shares, materially and
adversely impair his rights or increase his obligations under such Share Award.
(f) Restrictions on Transfer of Shares. Any Shares awarded or sold under
this Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Purchase Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares. Each certificate representing any
Shares awarded or sole under this Plan will bear a legend making appropriate
reference to the restrictions imposed on the Shares.
8. PAYMENT FOR SHARES
(a) General Rule. The entire Purchase Price or Exercise Price for the
number of Shares being purchased and, if applicable, any federal, state or local
withholding taxes required to be paid in
PAGE 8 OF 12
<PAGE>
accordance with Section 6(d) or 7(d) hereof, shall be payable in full, by cash
or by certified or cashier's check payable to the order of the Company or
equivalent thereof acceptable to the Company, at the time when such Shares are
purchased, except as provided in Subsections (b), (c) and (d) below.
Notwithstanding the foregoing, the Company shall have the right to postpone the
time of delivery of the Shares for such period as may be required for it to
comply, with reasonable diligence, with any applicable listing requirements of
any national securities exchange (including the Nasdaq National Market) or any
federal, state or local law. If an Optionee or Offeree fails to accept delivery
of or fails to pay for all or any portion of the Shares requested, the Committee
shall have the right to terminate his Option (or other right to acquire Shares)
with respect to the number of such Shares requested.
(b) Surrender of Stock. At the discretion of the Committee, payment may be
made in whole or in part with Shares which were acquired by the Optionee in the
open market or which have already been owned by the Optionee or his
representative for more than six months, and which certificate(s) representing
the Shares is surrendered to the Company duly endorsed and in good form for
transfer. Such Shares shall be valued at their Fair Market Value on the date
when the new Shares are purchased under this Plan.
(c) Services Rendered. At the discretion of the Committee, Shares may be
awarded under this Plan in consideration of services rendered to the Company or
a Subsidiary prior to the award. If Shares are awarded without the payment of a
Purchase Price in cash, the Committee shall make a determination (at the time of
the award) of the value of the services rendered by the Offeree and the
sufficiency of the consideration to meet the requirements of this Section 6(c).
(d) Cashless Exercise. At the discretion of the Committee, payment may be
made in whole or in part by delivery (on a form prescribed by the Committee) of
an irrevocable direction to a securities broker to sell Shares and to deliver
all or part of the sale proceeds to the Company in payment of the aggregate
Exercise Price.
9. ADJUSTMENT OF SHARES
(a) General. In the event of a subdivision of the outstanding Common
Stock, a declaration of a dividend payable in Shares, a declaration of a
dividend payable in a form other than Shares in an amount that has a material
effect on the value of Shares, a combination or consolidation of the outstanding
Common Stock (by reclassification or otherwise) into a lesser number of Shares,
a recapitalization or a similar occurrence, the Committee shall make appropriate
adjustments in one or more of (i) the number of Shares available for future
grants under Section 5, (ii) the number of Shares available for grants under
Section 4(c), (iii) the number of Shares covered by each outstanding Option,
(iv) the Exercise Price under each outstanding Option, (v) the number of Shares
covered by each outstanding award or (vi) the Purchase Price of each outstanding
award.
(b) Reorganization. In the event that the Company is a party to a merger
or other reorganization, outstanding Options shall be subject to the agreement
of merger or reorganization. Such agreement may provide for the assumption of
outstanding Options by the surviving corporation or its parent or for their
continuation by the Company (if the Company is a surviving corporation);
provided, however, that if assumption or continuation of the outstanding Options
is not provided by such agreement then the Committee shall have the option of
offering the payment of a cash settlement equal to the difference between the
amount to be paid for one Share under such agreement and the Exercise Price, in
all cases without the Optionees' consent.
(c) Reservation of Rights. Except as provided in this Section 9, an
Optionee or Offeree shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment
PAGE 9 OF 12
<PAGE>
of any dividend or any other increase or decrease in the number of shares of
stock of any class. Any issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to this Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
10. CHANGE OF CONTROL
Notwithstanding any other section this Plan, in the event of a Change in
Control, all restrictions on all awards or sales of Shares will lapse and
vesting on all unexercised Options will accelerate to the Change in Control
date.
11. LEGAL AND REGULATORY REQUIREMENTS
Shares shall not be issued under this Plan unless the issuance and
delivery of such Shares complies with (or is exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations and the regulations of any stock exchange on which the
Company's securities may then be listed.
12. NO EMPLOYMENT RIGHTS
Nothing contained in this Plan or in any right or Option granted under
this Plan shall confer upon any Offeree or Optionee any right with respect to
the continuation of his employment by or other Relationship with the Company or
a Subsidiary. The Company and its Subsidiaries reserve the right to terminate
any person's employment and/or Relationship at any time and for any reason, with
or without notice.
13. DURATION AND AMENDMENTS
(a) Term of this Plan. This Plan shall terminate automatically on
February 2, 2010 and may be terminated on any earlier date pursuant to
Subsection (b) below.
(b) Right to Amend, Suspend or Terminate this Plan. The Board of Directors
may amend, suspend or terminate this Plan at any time and from time to time.
Rights and obligations under any Option or other right granted before amendment
of this Plan shall not be materially and adversely impaired by such amendment,
except with consent of the holder of the Option or other right. An amendment of
this Plan shall be subject to the approval of the Company's stockholders only to
the extent required by applicable laws, regulations or rules.
(c) Effect of Termination. No Shares shall be issued or sold under this
Plan after the termination thereof, except upon exercise of an Option granted
prior to such termination. The termination of this Plan shall not affect any
Share previously issued or any Option previously granted under this Plan.
14. PLAN NOT A TRUST
Nothing contained in this Plan and no action taken pursuant to this Plan
shall create or be construed to create a trust of any kind, or a fiduciary
relationship, between the Company and any Offeree or Optionee, the executor,
administrator or other personal representative, or designated beneficiary of
PAGE 10 OF 12
<PAGE>
such Offeree or Optionee, or any other persons. If and to the extent that any
Offeree or Optionee or such Offeree's or Optionee's executor, administrator or
other personal representative, as the case may be, acquires a right to receive
any payment from the Company pursuant to this Plan, such right shall be no
greater than the right of an unsecured general creditor of the Company.
15. NOTICES
Each Offeree or Optionee shall be responsible for furnishing the Committee
with the current and proper address for the mailing of notices and delivery of
agreements, Common Stock and cash pursuant to this Plan. Any notices required or
permitted to be given shall be deemed given if directed to the person to whom
addressed at such address and mailed by regular United States mail, first-class
and prepaid. If any item mailed to such address is returned as undeliverable to
the addressee, mailing will be suspended until the Offeree or Optionee furnishes
the proper address. This provision shall not be construed as requiring the
mailing of any notice or notification if such notice is not required under the
terms of this Plan or any applicable law.
16. SEVERABILITY OF PROVISIONS
If any provision of this Plan shall be held invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provisions hereof, and
this Plan shall be construed and enforced as if such provisions had not been
included.
17. PAYMENT TO MINORS, ETC.
Any benefit payable to or for the benefit of a minor, an incompetent
person or other person incapable of receipting therefor shall be deemed paid
when paid to such person's guardian or to the party providing or reasonably
appearing to provide for the care of such person, and such payment shall fully
discharge the Committee, the Company and other parties with respect thereto.
18. HEADINGS AND CAPTIONS
The headings and captions herein are provided for reference and
convenience only, shall not be considered part of this Plan, and shall not be
employed in the construction of this Plan.
19. CONTROLLING LAW
This Plan shall be construed and enforced according to the laws of the
State of Nevada to the extent not preempted by federal law, which shall
otherwise control.
PAGE 11 OF 12
<PAGE>
20. EXECUTION
To record the adoption of this Plan by the Board effective as of
February 3, 2000, the Company has caused its authorized officer to execute
the same.
ROOMSYSTEM TECHNOLOGIES, INC.
By: /s/ Gregory L. Hrncir
-------------------------------------
Its: Secretary
-------------------------------------
PAGE 12 OF 12
<PAGE>
Exhibit 10.02
HUGHES CENTER
3770 HOWARD HUGHES PARKWAY
LAS VEGAS, NEVADA
[FULLY EXECUTED]
LEASE AGREEMENT
between
3770 HUGHES PARKWAY ASSOCIATES, LIMITED PARTNERSHIP
and
ROOM SYSTEMS FINANCE CORPORATION
Dated October 8, 1997
LEASE AGREEMENT
TABLE OF CONTENTS
ARTICLES PAGE
-------- ----
ARTICLE 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . -1-
ARTICLE 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
LEASE GRANT . . . . . . . . . . . . . . . . . . . . . . . . . -4-
------------
ARTICLE 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
LEASE TERM. . . . . . . . . . . . . . . . . . . . . . . . . . -4-
----------
ARTICLE 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
USE OF PREMISES AND COMMON AREAS . . . . . . . . . . . . . . -5-
----------------------------------
4.1 Premises. . . . . . . . . . . . . . . . . . -5-
--------
4.2 Common Areas of Building. . . . . . . . . . -5-
------------------------
4.3 Landlord's Rights in Common Areas . . . . . -5-
----------------------------------
<PAGE>
ARTICLE 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
BASE RENT AND ADDITIONAL RENT . . . . . . . . . . . . . . . . -6-
------------------------------
5.1 Base Rent . . . . . . . . . . . . . . . . . . . -6-
----------
5.2 Cost of Living Increase. . . . . . . . . . . . -6-
------------------------
5.3 Additional Rent. . . . . . . . . . . . . . . . -6-
----------------
5.4 Interest on Late Payments. . . . . . . . . . . -7-
--------------------------
ARTICLE 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
BASE RENT ADJUSTMENT. . . . . . . . . . . . . . . . . . . . . -7-
--------------------
ARTICLE 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
SERVICES TO BE FURNISHED BY LANDLORD. . . . . . . . . . . . . -8-
------------------------------------
ARTICLE 8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
IMPROVEMENTS TO BE MADE BY LANDLORD . . . . . . . . . . . . -9-
-------------------------------------
ARTICLE 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
MAINTENANCE AND REPAIR OF PREMISES BY LANDLORD. . . . . . . -9-
----------------------------------------------
ARTICLE 10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
GRAPHICS . . . . . . . . . . . . . . . . . . . . . . . . . -9-
----------
ARTICLE 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
CARE OF THE PREMISES BY TENANT . . . . . . . . . . . . . . . -9-
--------------------------------
ARTICLE 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
REPAIRS AND ALTERATIONS BY TENANT . . . . . . . . . . . . . -9-
-------------------------------------
ARTICLE 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
USE OF ELECTRICAL SERVICES BY TENANT . . . . . . . . . . . . -10-
--------------------------------------
ARTICLE 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
LAWS AND REGUALTIONS. . . . . . . . . . . . . . . . . . . . . -10-
--------------------
14.1 General . . . . . . . . . . . . . . . . . . . -10-
-------
14.2 Hazardous Materials . . . . . . . . . . . . . -11-
--------------------
14.3 Certain Insurance Risks. . . . . . . . . . . . -11-
------------------------
ARTICLE 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
BUILDING RULES . . . . . . . . . . . . . . . . . . . . . . . -11-
---------------
ARTICLE 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
ENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . -12-
------------------
ARTICLE 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . -12-
--------------------------
2
<PAGE>
TABLE OF CONTENTS
Section Page
------- ----
ARTICLE 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
-----
ARTICLE 19. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . -13-
-----------
19.1 Property Insurance . . . . . . . . . . . . . -13-
------------------
19.2 Liability Insurance . . . . . . . . . . . . -13-
-------------------
19.3 Requirements for Insurance Policies . . . . -13-
-----------------------------------
19.4 Waiver of Subrogation Rights . . . . . . . . -13-
----------------------------
ARTICLE 20. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . -14-
---------
ARTICLE 21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
PROPERTY DAMAGE . . . . . . . . . . . . . . . . . . . . . . -14-
------------------
ARTICLE 22. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . -15-
------------
ARTICLE 23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
DAMAGES FROM CERTAIN CAUSES . . . . . . . . . . . . . . . . -15-
-----------------------------
ARTICLE 24. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . -15-
-------------------
ARTICLE 25. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
LANDLORD'S REMEDIES . . . . . . . . . . . . . . . . . . . . -16-
--------------------
ARTICLE 26. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
LANDLORD'S DEFAULT . . . . . . . . . . . . . . . . . . . . . -17-
-------------------
ARTICLE 27. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
PEACEFUL ENJOYMENT. . . . . . . . . . . . . . . . . . . . . -17-
-------------------
ARTICLE 28. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . -17-
-------------
3
<PAGE>
ARTICLE 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
SUBORDINATION TO MORTGAGE. . . . . . . . . . . . . . . . . . -18-
-------------------------
ARTICLE 30. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
LANDLORD'S LIEN. . . . . . . . . . . . . . . . . . . . . . . -18-
----------------
ARTICLE 31. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
ATTORNEY'S FEES . . . . . . . . . . . . . . . . . . . . . . . -18-
---------------
ARTICLE 32. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
NO IMPLIED WAVER . . . . . . . . . . . . . . . . . . . . . . -19-
-----------------
ARTICLE 33. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
PERSONAL LIABILITY. . . . . . . . . . . . . . . . . . . . . -19-
-------------------
ARTICLE 34. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . . -19-
-------------------
ARTICLE 35. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
------
ARTICLE 36. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . -19-
------------
ARTICLE 37. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
RECORDATION . . . . . . . . . . . . . . . . . . . . . . . . -20-
-----------
ARTICLE 38. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . -20-
--------------
-ii
TABLE OF CONTENTS
-----------------
Section Page
------- ----
ARTICLE 39. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . -20-
---------------
ARTICLE 40. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
TIME OF PERFORMANCE . . . . . . . . . . . . . . . . . . . . -20-
-----------------------
ARTICLE 41. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
4
<PAGE>
TRANSFER BY LANDLORD . . . . . . . . . . . . . . . . . . . . -20-
----------------------
ARTICLE 42. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
COMMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . -20-
-----------
ARTICLE 43. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
EFFECT OF DELIVERY OF THIS LEASE. . . . . . . . . . . . . . . -20-
--------------------------------
ARTICLE 44. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY . . . . . . . . . -21-
--------------------------------------------
ARTICLE 45. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
JOINT AND SEVERAL LIABILITY. . . . . . . . . . . . . . . . . -21-
----------------------------
ARTICLE 46. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . -21-
--------------
ARTICLE 47. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. . . . . . . -21-
------------------------------------------------
ARTICLE 48. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . -21-
----------------------
ARTICLE 49. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
NO MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
----------
ARTICLE 50. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . -22-
------------
ARTICLE 51. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
--------
-iii-
LIST OF EXHIBITS
----------------
Principal Reference
Exhibit Description "In Section/Article"
------- ----------- --------------------
"A" Legal Description . . . . . . . . . . . . . . . . . 1.4
. . . . . . . . . . . . . . . . . . . . .
"B" Floor Plan of the Premises . . . . . . . . . . . . . 1.15
5
<PAGE>
"C" Parking Agreement . . . . . . . . . . . . . . . . . . 4.2 (ii)
"D" Work Letter . . . . . . . . . . . . . . . . . . . . . 8
"E" Rules and Regulations . . . . . . . . . . . . . . . 15
"F" Commencement Memorandum . . . . . . . . . . . . . . . 1.22
-iv-
HUGHES CENTER
LEASE AGREEMENT
THIS LEASE AGREEMENT the "Lease"), is made and entered into as of
the 8th day of October, 1997, between 3770 HUGHES PARKWAY ASSOCIATES, LIMITED
PARTNERSHIP a Nevada limited partnership ("Landlord"), and ROOM SYSTEMS FINANCE
CORPORATION, a _[TO BE INSERTED PRIOR TO EXECUTION]_ corporation ("Tenant").
W I T N E S S E T H:
- - - - - - - - - -
1.1 "Adjustment Months" shall mean the thirteenth (13th) and
twenty-fifth (25th) months of the Lease Term. For purposes of the foregoing
definition, the "first month" of the Lease Term shall be deemed to be the first
full calendar month during the Lease Term.
1.2 "Allowance" shall mean an amount equal to ___N/A___ ($___N/A___)
per square foot of Usable Area in the Premises. The Premises are stipulated for
all purposes to contain six hundred sixty-one (661) square feet of Usable Area.
1.3 "Base Rent" shall mean the sum of One and 95/100 Dollars ($1.95)
per month for each square foot of Rentable Area comprising the Premises which is
equal to Seventeen Thousand Seven Hundred Eighty-Four and 00/100 Dollars
($17,784.00) per annum as adjusted pursuant to Section 5.2 hereof. The Base Rent
due for the first full calendar month during the Lease Term has been paid to
Landlord by Tenant comtemporaneously with Tenant's execution hereof.
1.4 "Building" shall mean (a) the parcel of real property described
in Exhibit "A" attached hereto and incorporated herein, (b) the office building
and parking structure built or to be built on such parcel of real property, and
(c) any and all other improvements thereon and appurtenances thereto. The street
address of the Building is 3770 Howard Hughes Parkway,
6
<PAGE>
Hughes Center, Las Vegas, Nevada 89109, such street address may be modified by
Landlord from time to time during the Lease Term.
1.5 "Building Core" shall mean the area within the outermost finish
face of that portion of the Building that incorporates those areas that provide
service to the tenants of that floor and to the Building. These areas of service
include: restroom facilities for men and women along with the vestibule and
access, electrical, mechanical, and telephone rooms, janitor closets, elevators
and service elevators along with lobby and stairs, vestibules, and all vertical
floor penetrations for mechanical/electrical/plumbing for the Building.
1.6 "Building Shell" shall mean the condition of the Building
completed with the following improvements: (a) outside walls (not including
drywall), core walls, and elevator lobby areas completed to building standard
condition for public areas; (b) unfinished concrete floors throughout the
Premises, broom clean; (c) building standard 110 volt 220 amp. Power supplied to
the Building Core along with 277/480 volt fluorescent lighting power supplied to
the Building Core; (d) Men's and ladies' restroom facilities with building
standard finished located on each floor on which the Premises are located; (e)
building standard voice communication speakers and smoke detectors in accordance
with applicable building codes and provided only at the core; and (f)
mechanical, electrical, plumbing, life safety, heating, air conditioning and
ventilation in Building Core area as required to connect to and service the
Premises.
-1-
1.7 "Commencement Date: shall mean the earlier of (i) the date that
Tenant actually commences any business operations from the Premises or (ii)
October 15, 1997.
1.8 "Expense Stop" shall mean the amount (per square foot of Rentable
Area of the Premises) Landlord herewith agrees to expend as its share of
Operating Expense (which shall be a credit for Tenant to apply to offset
Operating Expenses charged to the Premises), not to exceed the total amount of
Operating Expenses for calendar year 1997 (the "Base Year") (per square foot of
Rentable Area in the Building); provided, however, that if occupancy of the
Building during the Base Year is less than ninety-five percent (95%), Operating
Expenses for the Base Year shall be "grossed up" to that amount of Operating
Expenses that, using reasonable projections, would normally be expected to be
incurred if the Building were ninety-five (95%) occupied during the Base Year.
With respect to Real Property Taxes included in Operating Expenses for the Base
Year, such amount shall be determined under the assumption that the building is
fully assessed as a completed and occupied unit.
1.9 "Index" shall mean the Consumer Price Index, Urban Wage Earners
and Clerical Workers for Los Angeles, Anaheim and Riverside Area, all items
(1982-1984-100), as published by the Bureau of Labor Statistics of the United
States Department of Labor. In the event that the Index is discontinued or is
revised to substantially alter the calculations under Section 5.2, Landlord
shall select such other government index which provides substantially the same
result as would have been obtained if the Index had not been so discontinued or
revised.
7
<PAGE>
1.10 "Laws" shall mean all applicable statutes, regulations,
ordinances, requirements and orders promulgated by any federal, state, local or
regional governmental authority now in force or in the force after the
Commencement Date.
1.11 "Lease Interest Rate" shall mean the lesser of (a) that
fluctuating rate of interest equal to two percentage points (2%) over the rate
of interest announced from time to time by the Bank of America National Trust
and Savings Association as its prime or reference commercial lending rate (or in
the event such bank ceases to announce such rate, then by such other federally
regulated banking institution as Landlord shall determine), or (b) the maximum
interest rate permitted by law.
1.12 "Lease Term" shall mean the term commencing on the Commencement
Date and continuing until thirty-six (36) months after the first day of the
first full calendar month following the Commencement Date.
1.13 "Mortgagee" shall mean the mortgagee under a mortgage or
beneficiary under a deed of trust holding a lien encumbering the Building or any
holder of a ground leasehold interest in the Building or any part thereof.
1.14 "Operating Expenses" shall mean all costs of any kind paid or
incurred by Landlord in owning, operating, cleaning, equipping, protecting,
lighting, repairing, replacing, heating, air-conditioning and maintaining the
Building as a first class office project, and a proration of Operating Expenses
for all common areas within Hughes Center as provided in the REA or as otherwise
determined by Landlord, including by way of illustration but not limitation, all
of the following: (a) all amounts charged to the Building pursuant to the REA;
(b) Real Property Taxes; (c) all costs, charges and surcharges for utilities,
water, sewage, janitorial, waste disposal and refuse removal and all other
utilities and services provided to the Building; (d) insurance costs for which
Landlord is responsible under this Lease or which Landlord or any Mortgagee
deems necessary or prudent; (e) any costs levied, assessed or imposed pursuant
to any applicable Laws; (f) the cost (amortized over such period as Landlord
reasonably determines together with interest at the Lease Interest Rate on the
unamortized balance) of any capital improvements to the Building or equipment
replacements made by Landlord after the Commencement Date that are intended to
reduce other Operating Expenses or are required by any Laws or are necessary in
order to operate the Building at the same quality level as prior to such
replacement; (g) costs and expenses of operation, repair and maintenance of all
structural and mechanical portions and components of the Building including,
without limitation, plumbing, communication, heating, ventilating and
air-conditioning ("HVAC"), elevator, and electrical and other common Building
systems; (h) a pro rata portion of the cost of the management office rental for
Hughes Center; (i) all costs incurred in the management and operation of the
Building including, without
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limitation, gardening and landscaping, maintenance of all parking areas,
structures and garages, maintenance of signs, resurfacing and repaving,
painting, lighting, cleaning, and provision of Building security; (j) all
personal property taxes levied on or attributable to personal property used in
connection with the Building; (k) depreciation on personal property owned by
Landlord which is consumed in the operation or maintenance of the Building; (l)
rental or lease payments paid by Landlord for rented or leased personal property
used in the operation or maintenance of the Building; (m) management fees,
wages, salaries and other labor costs incurred in the management and operation
of the Building; (n) fees for required licenses and permits; (o) reasonable
legal, accounting and other professional fees; (p) reasonable and appropriate
reserves for repair and replacement; and (q) a reasonable allowance to Landlord
for supervision of all of the foregoing not to exceed five percent (5%) of the
total of all other Operating Expenses. If the Building is not fully occupied
during any portion of the Lease Term, Landlord shall make an appropriate
adjustment to Operating Expenses for such period employing sound accounting and
management principles, to determine the amount of Operating Expenses that would
have been incurred had the Building been fully occupied during such period
(collectively referred to as "Grossed-Up"). Operating Expenses shall not include
depreciation of the Building or equipment therein, commissions of real estate
brokers and leasing agents, nor any amounts expended for tenant improvements.
1.15 "Premises" shall mean that space known as Suite 175 as outlined
on the floor plan attached to this Lease as Exhibit "B" and incorporated herein.
The Premises are stipulated for all purposes to contain seven hundred sixty
(760) square feet of Rentable Area.
1.16 "REA" shall mean (i) that certain Amendment and Restatement of
the Grant of Reciprocal Easements and Declaration of Covenants (Phase I)
recorded in the Official Records of Clark County, Nevada on September 8, 1995,
in Book 950908 as Instrument No. 01919 as may be amended from time to time and
(ii) that certain Howard Hughes Declaration of covenants recorded in the
Official Records of Clark County, Nevada on October 11, 1985 in Book 2199 as
Instrument No. 2158547, as amended by the First Amendment to Howard Hughes
Center Declaration of Covenants dated August 29, 1995 recorded in the Official
Records of Clark County, Nevada on September 8, 1995 in Book 950908, Instrument
No. 01918 and as further amended by the Second Amendment to Howard Hughes enter
Records of Clark County, Nevada on December 6, 1995 in Book 951206, Instrument
No. 00257 as may be amended from time to time; provided, however, that no such
further amendment or supplement shall in any event decrease Tenant's rights,
materially increase Tenant's financial obligations, or increase Tenant's
non-financial obligations under this Lease.
1.17 "Real Property Taxes: shall mean and include any form of tax,
assessment, license fee, license tax, business license fee, commercial rental
having the direct power to tax, including any city, county, state or federal
government, or any school,. Lighting, drainage, transportation, air pollution,
environmental or other improvement or special assessment district thereof, as
against any legal or equitable interest of Landlord in the Building and/or the
Premises, including, but not limited to, the following: (a) any tax on
Landlord's "right" to rent or "right" to other income from the Premises or as
against Landlord's business of leasing the Premises; (b) any assessment, tax,
fee, levy or charge in substitution, partially or totally, of any assessment,
tax, fee, levy or charge previously included within the definition of Real
Property Taxes (it is the
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intention of Tenant and Landlord that all such new and increased assessments,
taxes, fees, levies and charges be included within the definition of "Real
Property Taxes: for the purposes of this Lease); (c) any assessment, tax, fee,
levy or charge allocable to or measured by the area of the Premises or the rent
payable hereunder, including, without limitation, any gross income tax,
political subdivision thereof, with respect to the receipt of such rent, or upon
or with respect to the possession, leasing, operating, management, maintenance,
alteration, repair, use or occupancy of the Building, or any portion thereof;
(d) any assessment, tax, fee, levy or charge upon this transaction creating or
transferring an interest or an estate in the Premises; (e) any assessment, tax,
fee, levy or charge based upon the number of people employed, working at, or
using the Premises of the Building, or utilizing public or private
transportation
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to commute to the Premises or the Building; and (f) reasonable legal and other
professional fees, costs and disbursements incurred in connection with
proceeding to contest, determine or reduce Real Property Taxes.
Real Property Taxes shall not include federal or state income,
franchise, inheritance or estate taxes of Landlord or any of the parties which
comprise Landlord.
1.18 "Rentable Area" of the Premises shall mean the total of the
following measurements to be determined by Landlord: (a) the entire area
included within the Premises, being the area bounded by the inside surface of
any exterior glass walls (or the inside surface of the Permanent exterior wall
where there is no glass) of the Building bounding the Premises, the exterior of
all walls separating the Premises from any public corridors or other public
areas, and the centerline of all walls separating the Premises from other areas
leased or to be leased to other tenants, (b) a pro rata portion based on the
space occupied on the floor or floors on which the Premises is located ( the
"Floor(s)") of the areas covered by the elevator lobbies, corridors, restrooms,
and by mechanical rooms, electrical rooms and telephone closets situated on the
Floor(s) (such pro rata portion shall be the same percentage that the amount of
Rentable Area in the Premises bears to the Rentable Area on the Floor(s) on
which the Premises is located), other than those servicing the entire Building,
and (c) a pro rata portion of the lobby area on the ground floor of the Building
and of area of the Building containing the electrical/emergency equipment, fire
pump equipment, electrical switching gear, telephone equipment, mail delivery
room and other facilities serving the Building (such pro rata portion shall be
the same percentage that the amount of Rentable Area of the Premises bears to
the total Rentable Are in the entire Building). The Building is stipulated for
all purposes to contain sixty-three thousand seven hundred fifty-eight (63,758)
square feet of Rentable Area.
1.19 "Security Deposit" shall mean the sum of One Thousand Four
Hundred Eighty-Two and 00/100 Dollars ($1,482.00). The Security Deposit has been
paid to Landlord by Tenant contemporaneously with Tenant's execution hereof.
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1.20 "Tenant's Share" shall be a fraction of which the numerator is
the Rentble Area of the Premises as set forth in Section 1.15. and the
denominator is the Rentable Area in the Building as set forth in Section 1.18.
1.21 "Usable Area: for the Premises shall mean the Rentable Area for
the Premises, minus the following reductions as determined by Landlord: the
Premises pro rata portion of the lobby area on the ground floor and
electrical/emergency equipment, fir pump equipment, electrical switching gear,
telephone equipment, mail delivery facilities, elevator penthouse, security
rooms, trash rooms and other areas which service the entire Building as
specified in the definition of Rentable Area, and (b) the Premises' pro rata
portion of the space occupied on the Floor(s) of Premises covered by the
elevator lobbies, corridors, restrooms, mechanical rooms, electrical rooms and
telephone closets situated on such Floors as specified in the definition of
Rentable Area.
1.22 "Commencement Memorandum: shall mean a document similar to
Exhibit "F" attached hereto. The Commencement Memorandum, among other things,
shall contain a reference to the Rentable Area of the Premises and Useable Area
of the Premises. Tenant agrees that the Rentable Area and Useable Area of the
Premises stated in the Commencement Memorandum shall be binding throughout the
Lease Term.
ARTICLE 2
LEASE GRANT
Subject to and upon the terms and conditions herein set forth,
Landlord leases to Tenant and Tenant leases from Landlord the Premises.
ARTICLE 3
LEASE TERM
Landlord will be deemed to have delivered to Tenant possession of
the Premises in its "as is" condition as of the Commencement Date. Tenant
acknowledges that neither Landlord nor its agent or employees have made any
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representations or warranties as to the suitability or fitness of the Premises
for the conduct of Tenant's business or for any other purpose, nor has Landlord
or its agents or employees agreed to undertake any alterations or construct any
tenant improvements to the Premises except as expressly provided in this Lease
and pursuant to Schedule 1 of the Work letter attached hereto as Exhibit "D". If
for any reason Landlord cannot deliver possession of the Premises to Tenant on
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or before the fixed date component of the Commence Date, this Lease will not be
void or voidable, and Landlord will not be liable to Tenant for any resultant
loss or damage.
Notwithstanding anything to the contrary contained herein, Tenant
shall have the right to terminate the Lease at any time, provided Tenant
satisfies the following conditions precedent to Tenant's right to terminate:
(i) Landlord and Tenant mutually execute a new lease ("Replacement
Lease") for replacement space ("Replacement Space") at Hughes Center, La
Vegas, Nevada 89109;
(ii) Tenant occupies the Replacement Space, makes the first month's
rent, and has not committed a default (or with the passage of time and
notice a default would occur) under the Replacement Lease; and
(iii) Tenant is not currently in default under the Lease or with the
passage of time and notice would be in default under the Lease.
Upon Tenant's satisfaction of all of the above conditions precedent to Tenant's
right to terminate, all future obligations under the Lease with respect to
Tenant and Landlord shall automatically terminate, provided Tenant shall
continue to be liable for all obligations arising prior to the termination of
the Lease.
ARTICLE 4
USE OF PREMISES AND COMMON AREAS
4.1 Premises. The Premises shall be used for general office purposes
and for no other purposes. Tenant will use the Premises in a careful, safe, and
proper manner. Tenant agrees not to use or permit the use of the Premises for
any purpose which is =illegal or prohibited by any applicable Laws, or which, in
Landlord's opinion, creates a nuisance or would increase the cost of insurance
coverage with respect to the Building. Tenant shall not use or occupy the
Premises exceeding the average pounds live load per square foot of floor area
specified for the Building by Landlord's architect, with the partitions to be
considered part of the live load. Landlord reserves the right to prescribe the
weight and position of all safes, files and heavy equipment which Tenant desires
to place in the Premises so as to distribute properly the weight thereof.
4.2 Common Areas of Building. Tenant shall have the nonexclusive right
to use in common with other tenants in the Building, and subject to the rules of
the Building referred to in Article 15 below, the following areas ("Common
Areas") appurtenant to the Premises:
(i) The common entrances, lobbies, restrooms, elevators,
stairways and accessways, loading dock, ramp, drives and platforms and any
passageways and serviceways thereto, and the common pipes, conduits, wires
and appurtenant equipment serving the Premises;
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<PAGE>
(ii) Parking areas (subject to the provisions of the Parking
Agreement attached hereto as Exhibit "C"), loading and unloading areas,
trash areas, roadways, sidewalks, walkways, parkways, driveways and
landscaped areas appurtenant to the Building.
4.3 Landlord's Rights in Common Area. Landlord reserves the right from
time to time without unreasonable interference with Tenant's use:
(i) To install, use, maintain, repair and replace pipes, ducts,
conduits, wires and appurtenant meters and equipment for
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service to other parts of the Building above the ceiling surfaces, below the
floor surfaces, within the walls and in the central core areas, and to
relocate any pipes, ducts, conduits, wires and appurtenant meters and
equipment included in the Premises which are located in the Premises or
located elsewhere outside the Premises, and to expand the Building;
(ii) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, loading and unloading areas, ingress, egress, direction of
traffic, landscaped areas and walkways and, subject to the Parking
Agreement, parking spaces and parking areas;
(iii) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(iv) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Building, or any portion
thereof;
(v) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Building as Landlord
may, in the exercise of sound business judgment, deem to be appropriate.
ARTICLE 5
BASE RENT AND ADDITIONAL RENT
5.1 Base Rent. Tenant agrees to pay to Landlord during the Lease Term,
without any setoff or deduction whatsoever the Base Rent, and all such other
sums of money as shall becom due hereunder as Additional Rent. Should Tenant
fail to pay any Additional Rent in a timely manner, Landlord shall be entitled
to exercise all such rights and remedies as are herein provided in the case of
th enonpayment of Base Rent. The annual Base Rent for each calendar year or
portion thereof during the Leae Term, together with estimated Additional Rent
pursuant to
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Article 6 hereof then in effect, shall be due and payable in advance, in lawful
money of the United States of America which shall be legal tender at the time of
payment, in twelve (12) equal installments on the first day of each calendar
month during the initial term of this Lease and any expensions or renewals
thereof, and Tenant hereby agrees to pay such Base Rent and Additional Rent to
Landlord at Landlord's address provided herein (or such other address and may be
designated by Landlord in writing from time to time) monthly, in advance, and
without demand. If the Lease Term commences on a day other than the first day of
a month or terminates on a day other than the last day of a month, then the
installments of Base Rent and Additional Rent for such month or months shall be
prorated, based on the number of days in such month.
5.2 Cost of Living Increases. The Base Rent shall be increased on the
first day of each Adjustment Month specified in Section 1.1 in proportion to the
increase in the Index which has occurred between the month which is three (3)
months prior to the first month of the Lease Term, in the case of the first
increase (and three (3) months prior to the first month of the previous
Adjustment Month subsequent increases) and the month which is three (3) months
prior to such Adjustment Month. In the event the increase in the Index for an
Adjustment Month is less than three percent (3%), the increase in the Index for
that Adjustment Month shall be deemed three percent (3%). Landlord shall notify
Tenant of each increase by delivering a written statement setting forth the
Indices, and the new amount of the Base Rent by reason of any decrease in the
Index. Tenant shall pay the new Base Rent from its effective date until the
periodic increase. If the Index for the month in which the Base Rent is to be
increased is not available at the time the Base Rent for such month is payable,
the most recently available Index shall be used as the basis for an estimate and
when the Index for such month becomes available, the parties shall adjust for
any variation between the estimated and actual Base Rent for such month.
5.3 Additional Rent. All charges payable by Tenant hereunder other
than Base Rent (including, without limitation, Operating Expenses payable
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pursuant to Article 6 below) are called " Additional Rent." Unless this Lease
provides otherwise, all Additional Rent shall be paid with the next monthly
installment of Base Rent. Base Rent and Additional Rent are sometimes referred
to collectively as "Rent."
5.4 Interest on Late Payments. All installments of Rent not paid when
due and payable shall bear interest at the Lease Interest Rate from the date due
until paid. In addition, if any installment of Rent is not received by Landlord
within five (5) days after notice that said amount is past due from Landlord to
Tenant, Tenant shall pay to Landlord, as Additional Rent, five percent (5%) of
the overdue amount as a late charge. Landlord's acceptance of any late charge or
interest shall not constitute a waiver of Tenant's default with respect to the
overdue amount nor prevent Landlord from exercising any of the other rights and
remedies available to Landlord under this Lease or any law now or hereafter in
effect.
ARTICLE 6
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BASE RENT ADJUSTMENT
The Base Rent payable hereunder shall be adjusted upward from time to
time in accordance with the following provisions:
(a) Tenant shall pay to Landlord as an adjustment to Rent, an amount
equal to the excess (the "Excess") from time to time of total annual
Operating Expenses per square foot of Rentable Area of the Premises, as
Grossed-Up, over and above the Expense Stop. The Excess shall be obtained by
multiplying (I) the difference between the annual Operating Expense per
square foot of Rentable Area in the Premises and the Expense Stop, by (ii)
the total Rentable Area of the Premises as set forth in Section 1.15. Such
amount shall be pain in advance in monthly installments on the same dates as
Base Rent is due an payable hereunder based on Landlord's notice delivered
to Tenant from time to time setting forth Landlord's good faith estimate of
the Operating Expenses for the current calendar year. Landlord shall have
the right to adjust such amount no more than once a year to reflect any
changes in Landlord's estimate of Operating Expenses.
(b) By April 1 of each calendar year during the lease Term, or as soon
thereafter as practical but no later than May 1, Landlord shall furnish to
Tenant a statement. ("Actual Statement") of Landlord's annual Operating
Expenses, as Grossed-Up, for the previous calendar year. If for any calendar
year the amounts collected from Tenant for the prior year, as a result of
Landlord's estimate of Operating Expenses, exceeds the amount of the Excess
actually due during such prior year, then Landlord shall refund to Tenant
any overpayment (or at Landlord's option, apply such amount against Rent due
or to become due hereunder). Likewise, Tenant shall pay to the Landlord, on
demand, any underpayment with respect to the prior year.
(c) In the event of any good faith dispute as to the amount of the
Excess as set forth in the statement of actual Operating Expenses, Tenant
shall have the right, no more frequently than once per calendar year, after
reasonable notice to Landlord and at reasonable times, to inspect and
photocopy Landlord's Operating Expenses records at Landlord's officer. If,
after such inspection and photocopy, Tenant continues, in good faith, to
dispute the amount of the Excess, as set forth in said statement, Tenant
shall be entitled not later than one (1) year following Tenant's receipt of
an Actual Statement to retain a national, independent, certified public
accountant who is not contracted on a contingency fee basis and is mutually
acceptable to landlord and Tenant to and is mutually acceptable to Landlord
and Tenant to audit Landlord's Operating Expenses records with respect to
the calendar year covered by Actual Statement to determine the proper
amount of the Excess. Landlord shall be entitled to review the results of
such audit promptly after completion of same. If the results of such audit
prove that Landlord has overcharged Tenant, then within fifteen (15) days
after the results of the audit are made available to Landlord, Landlord
shall credit Tenant the amount of such
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15
<PAGE>
overcharge toward the payments of Base Rent and Additional Rent next coming
due under this Lease. If the audit proves that Landlord has undercharged
Tenant, then within fifteen (15) days after the results of the audit are
made available to Tenant, Tenant shall pay to Landlord the amount of any
such undercharge. Tenant agrees to pay the cost of such audit, provided
that Landlord shall reimburse Tenant the amount of such cost if the results
of such audit prove that Landlord's determination of the Operating Expenses
(as set forth in the Actual Statement) was in error by more than six
percent (6%). If Tenant does not request an audit in accordance with the
provisions of this Section 6(c) within one (1) year after Tenant's receipt
of an Actual Statement, such Actual Statement shall be conclusively binding
upon Tenant. Landlord shall be required to maintain records of all
Operating Expenses for three (3) years following the issuance of the
Operating Expense statement for such Operating Expenses. The payment by
Tenant of any amounts pursuant to this Article shall not preclude Tenant
from questioning the correctness of any such statement.
ARTICLE 7
SERVICES TO BE FURNISHED BY LANDLORD
Landlord agrees to furnish Tenant the following services as an
Operating Expense for the Building (except as specifically provided below):
(a) Hot and cold water at those points of supply provided for general
use of other tenants in the Building, central heat and air conditioning in
season, at such temperatures and in such amounts as are considered by
Landlord to be standard or as required by governmental authority; provided,
however, heating and air conditioning service at times other than "Normal
Business Hours" for the Building (which are 8:00 a.m. to 6:00 p.m. on
Mondays through Fridays and 8:00 a.m. to 1:00 p.m. on Saturdays, exclusive
of federally recognized holidays), shall be furnished upon receipt of a
phone request by Tenant utilizing Landlord's computer which permits Tenant
to make phone requests for such heating and air conditioning services.
Tenant shall bear the entire cost of such additional services. Tenant shall
bear the entire cost of such additional service as such costs are determined
by Landlord from time to time. Currently, Landlord is charging Forty-Five
and 00/100 Dollars ($45.00) per hour for each hour of other than " Normal
Business Hours: heating and air conditioning service.
(b) Routine maintenance and electric lighting service for all Common
Areas and service areas of the Building in the manner and to the extent
deemed by Landlord to be standard.
(c) Janitorial service, five (5) days a week, exclusive of federally
recognized holidays; provided, however, if Tenant's floor covering or other
improvements require special treatment, Tenant shall pay the additional
cleaning cost attributable thereto as Additional Rent upon presentation of a
statement therefor by Landlord.
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(d) Subject to the provisions of Article 13, facilities to provide all
electrical current required by a typical office user, as determined by
Landlord, in its use and occupancy of the Premises.
(e) All Building Standard fluorescent bulb replacement in the Premises
and fluorescent and incandescent bulb replacement in the Common Areas of the
Building.
(f) Security in the form of limited access to the Building during other
than Normal Business Hours shall be provided in such form as Landlord deems
appropriate. Landlord may charge a fee for card keys or other security
devices. Landlord, however, shall have no liability to Tenant, its
employees, agents, invitees or licensees for losses due to theft or
burglary, or for damages resulting from the actions of unauthorized persons
on the Premises or in the Building and Landlord shall not be required to
insure against any such losses. Tenant shall cooperate fully in Landlord's
effort to
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maintain security in the Building and shall follow all regulations
promulgated by Landlord which respect thereto.
(g) Access to the Premises, the Building, and the parking facilities
twenty-four (24) hours a day, seven (7) days per week and fifty-two (52)
weeks per year; provided, however, such access shall be limited by the
building access system, parking facilities access system, and temporary
closures that may be necessary to maintain the Building and/or parking
facilities.
The failure by Landlord to any extent to furnish, or the interruption or
termination of these defined services in whole or part, resulting from
causes beyond the reasonable control of Landlord shall not render Landlord
liable in any respect nor be construed as an eviction of Tenant, nor work
and abatement of Rent, nor relieve Tenant from the obligation to fulfill any
covenant or agreement hereof. Should any of the equipment or machinery used
in the provision of such services for any cause cease to function properly,
Tenant shall have no claim for offset or abatement or rent or damages on
account of an interruption in service resulting therefrom.
ARTICLE 8
IMPROVEMENTS TO BE MADE BY LANDLORD
Except as otherwise provided in the Work Letter attached hereto as
Exhibit "D," all installations and improvements now or hereafter placed on
the Premises shall be for Tenant's account and at Tenant's cost (and Tenant
shall pay ad valorem taxes and the cost
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of any increased insurance premiums thereon or attributable thereto), which
cost shall be payable by Tenant to Landlord upon demand as Additional Rent.
ARTICLE 9
MAINTENANCE AND REPAIR OF PREMISES BY LANDLORD
Except as otherwise expressly provided herein, Landlord shall not be
required to perform any maintenance or to make any repairs to the Premises.
ARTICLE 10
GRAPHICS
Landlord shall provide and install, at Tenant's cost, all letters or
numerals on doors in the Premises; all such letters and numerals shall be in
the standard graphics for the Building and no others shall be used or
permitted on the Premises without Landlord's prior written consent. Tenant
shall have the right to designate one (1) name on the directory board in the
lobby of the Building. Landlord shall have the option to maintain, in place
of the directory board in the lobby of the Building, a computerized
directory with display screen which has the capacity to accommodate Tenant's
name designation.
ARTICLE 11
CARE OF THE PREMISES BY TENANT
Tenant agrees not to commit or allow any waste to be committed on any
portion of the Premises, and at the termination of the Lese agrees to
deliver up the Premises to Landlord in as good condition as at the
Commencement Date of this Lease, ordinary wear and tear excepted.
ARTICLE 12
REPAIRS AND ALTERATIONS BY TENANT
Tenant covenants and agrees that Tenant shall be responsible, at
Tenant's own cost and expense, for costs incurred by Landlord to repair or
replace any damage done to the Building, or any part thereof, caused by
Tenant or Tenant's agents, employees, invitees, or visitors, to as good a
condition as requested by Landlord to do so, at Tenant's sole cost and
expense, maintain and make all repairs to the Premises and the improvements
therein, to keep, maintain
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and preserve the Premises in first-class condition, excepting ordinary wear
and tear. Any such maintenance and repairs shall be performed by a
contractor approved by Landlord. If Tenant fails to make such repairs or
replacements promptly, Landlord may, at its option, make repairs or
replacements, and Tenant shall pay the cost thereof to Landlord on demand as
Additional Rent. Tenant agrees with Landlord not to make or allow to be made
any alterations to the Premises, install any vending machines on the
Premises, or place signs on the Premises which are visible from outside the
Premises, without first obtaining the written consent of Landlord in each
such instance, which consent way be given on Landlord's approval prior to
the construction of any alterations, a complete set of plans and
specifications for the proposed alterations, additions or improvements,
copies of contracts with general contractors, evidence of contractor's
insurance and bonds, and all necessary permits for such construction.
Landlord may require Tenant to provide demolition and/or lien and completion
bonds in form and amount satisfactory to Landlord. All alterations,
additions, and improvements will be accomplished in a good and workmanlike
manner, in conformity with all applicable laws, and by a contractor approved
by Landlord. Landlord's approval of the plans, specifications and working
drawings for Tenant's alterations shall create no responsibility or
liability on the part of Landlord for their completeness, design,
sufficiency, or compliance with all laws, rules and regulations of
governmental agencies or authorities. Upon completion of any such work,
Tenant shall provide Landlord with "as built" plans, copies of all
construction contracts, and proof of payment for all labor and materials.
Any and all alterations to the Premises shall become the property of
Landlord upon termination of this Lease (except for movable equipment or
furniture owned by Tenant). Landlord may, nonetheless, require Tenant to
remove any an all fixtures, equipment and other improvements installed on
the Premises. In the event that Landlord so elects, and Tenant fails to
remove such improvements, Landlord may remove such improvements at Tenant's
cost, and Tenant shall pay landlord on demand the cost of restoring the
Premises to the condition that existed immediately prior to the construction
of such improvements.
ARTICLE 13
USEE OF ELECTRICAL SERVICES BY TENANT
Tenant's use of electrical services furnished by Landlord shall be
subject to the following:
(a) Landlord agrees to furnish to the Premises, at no extra cost to
Tenant but as an Operating Expense, five (5) watts of electric current,
connected load, per square foot of Usable area during Normal Business
Hours within the Premises on an annualized basis for normal lighting,
normal fractional horsepower office machines, and HVAC as required in
Landlord's judgment for the use and occupation of the Premises.
(b) In the event that Tenant requires or uses more electric power than
specified in Section 13(a) above, Landlord may, at Landlord's option,
require Tenant to pay the cost as reasonably determined by Landlord of
such extraordinary usage as Additional Premises, at Tenant's sole cost
and expense, and Tenant shall thereafter pay all charges of the utility
company providing electric service and landlord shall make and
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appropriate adjustment to Tenant's obligation to pay a proportionate
share of the Operating Expenses to account for the fact that Tenant is
directly paying such metered charges.
ARTICLE 14
LAWS AND REGULATIONS
14.1 General. At its sole cost and expense, Tenant will promptly
comply with all Laws, statutes, ordinances, and governmental rules, regulations,
requirements now in force or in force after the commencement Date, with the
requirements of any board of fire underwriters or other similar body constituted
now or after the date, with any direction or occupancy certificate issued
pursuant to any law by any public officer or officers, as well as with the
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provisions of all recorded documents affecting the Premises, insofar as they
relate to the condition, use, or occupancy of the Premises.
14.2 Hazardous Materials,
(a) For the purposes of this Lease, "Hazardous Materials"
means any explosives, radioactive materials, hazardous wastes, or hazardous
substances, including without limitation substances defined as "hazardous
substances: in the Comprehensive Environmental Response, compensation and
Liability Act of 1980, as amended, 43 U.S.C. ## 90601-9657; the Hazardous
Materials Transportation Act of 1975, 49 U.S.C. ## 1801-1812; the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. ## 6901-6987; or any other
federal, state, or local statute, law, ordinance, code, rule, regulation, order,
or decree regulating, relating to, or imposing liability or standards of conduct
concerning hazardous material, waste, or substances now or at any time hereafter
in effect (collectively, "Hazardous Materials Laws").
(b) Tenant will not cause or permit the storage, use,
generation, or disposition of any Hazardous Materials in, on, or about the
Premises or the project by Tenant, its agents, employees, or contractors. Tenant
will not permit the Premises to be used or operated in a manner that may cause
the Premises or the project to be contaminated by any Hazardous materials in
violation of any Hazardous Materials Laws. Tenant will immediately advise
Landlord in writing of (1) any and all enforcement, cleanup, remedial, removal,
or other governmental or regulatory actions instituted, completed, or threatened
pursuant to any Hazardous Materials Laws relating to any Hazardous Materials
affecting the Premises; and (2) all claims made or threatened by any third party
against Tenant, landlord, or the Premises relating to damage, contribution, cost
recovery, compensation, loss, or injury resulting from any Hazardous materials
on or about the Premises. Without Landlord's prior written consent, Tenant
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<PAGE>
will not take any remedial action or enter into any agreements or settlements in
response to the presence of any Hazardous Materials in, on, or about the
Premises.
(c) Tenant will be solely responsible for and will defend,
indemnify and hold Landlord, its agents, and employees harmless from and against
all claims, costs, and liabilities, including attorneys' fees and costs, arising
out of or in connection with Tenant's breach of its obligations in this Article
14. Tenant will be solely responsible for and will defend, indemnify, and hold
Landlord, its agent, and employees harmless from and against any and all claims,
costs, and liabilities, including attorneys' fees and costs, arising out of or
in connection with the removal, cleanup, and restoration work and materials
necessary to return the Premises and any other property of whatever nature
located in, on, or about the Building, to their condition existing prior to the
introduction of Hazardous Material by Tenant, its agents, employees or
contractors. Tenant's obligations under this Article 14 will survive the
expiration or other termination of this Lease.
14.3 Certain Insurance Risks. Tenant will not do or permit to be done
any act or thing upon the Premises or the Building which would (i) jeopardize or
be in conflict with fire insurance policies covering the Building or covering
any fixtures and property in the Building; (ii) increase the rate of fire
insurance applicable to the Building to an amount higher than it otherwise would
be for general office use of the Building; or (iii) subject Landlord to any
liability or responsibility for injury to any person or persons or to property
by reason of any business or operation being carried on upon the Premises.
ARTICLE 15
BUILDING RULES
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invitees and visitors to do so; all changes to such rules will be sent by
Landlord to Tenant in writing.
ARTICLE 16
ENTRY BY LANDLORD
Tenant agrees to permit Landlord or its agents or representatives to
enter into and upon any part of the Premises at all reasonable hours (and in
emergencies at all times) to inspect the same, or to show the Premises to
prospective purchasers, Mortgagees, tenants or insurers, to clean or make
repairs, alterations or additions thereto, and Tenant shall not be entitled to
any abatement or reduction of rent by reason thereof.
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<PAGE>
ARTICLE 17
ASSIGNMENT AND SUBLETTING
17.1 Tenant shall not assign, sublease, transfer or encumber this
Lease or any interest therein. Any attempted assignment or sublease by Tenant in
violation of the terms and covenants of this Article 17 shall be void.
17.2 If Tenant requests Landlord's consent to an assignment of this
Lease or subletting of all or part of the Premises, Landlord shall have the
option (without limiting Landlord's other rights hereunder) of terminating this
Lease upon thirty (30) days notice. Landlord may then, at Landlord's option,
lease space to the prospective assignee or subtenant. If Landlord should fail to
notify Tenant in writing of its decision within a thirty (30) day period after
Landlord is notified in writing of the proposed assignment or sublease, Landlord
shall be deemed to have refused to consent to such proposed assignment or
sublease, and to have elected to keep this Lease in full force and effect.
17.3 All cash or other proceeds of any assignment, sale or sublease of
Tenant's interest in this Lease, whether consented to by Landlord or not, shall
be paid to Landlord notwithstanding the fact that such proceeds exceed the Rent
called for hereunder, unless Landlord agrees to the contrary in writing, and
Tenant hereby assigns all rights it might have or ever acquire in any such
proceeds to Landlord. This covenant and assignment shall run with the land and
shall bind Tenant and Tenant's heirs, executors, administrators, personal
representatives, successors and assigns. Any assignee, subleasee or purchaser of
Tenant's interest in this Lease (all such assignees, subleasees and purchasers
being hereinafter referred to as "Successors"), by assuming Tenant's obligations
hereunder, shall assume liability to Landlord for all amounts paid to persons
other than Landlord by such Successor in consideration of any such sale,
assignment or subletting, in violation of the provisions hereof.
17.4 No assignment, sublease or other transfer consented to by
Landlord, shall release Tenant or change Tenant's primary liability to pay the
rent and to perform all other obligations of Tenant under this Lease. Upon the
occurrence of any default under this Lease, Landlord may proceed directly
against Tenant without the necessity of exhausting any remedies against any
subtenant or assignee. Upon termination of this Lease, any permitted subtenant
shall, at Landlord's option, Attorn to Landlord and shall pay all Rent directly
to constitute a waiver of any provision of this Article 17. Consent to one
transfer shall not constitute a consent to any subsequent transfer. Landlord may
consent to subsequent assignments or modifications of this Lease by Tenant's
transferee, without notifying Tenant or obtaining its consent. Such action shall
not relieve Tenant of its liabilities.
17.5 No merger shall result from Tenant's sublease of the Premises
under this Article 17, Tenant's surrender of this Lease or the termination of
this Lease in any other manner. In any such event, Landlord may terminate any or
all subtenancies or succeed to the interest of Tenant as sublandlord thereunder.
ARTICLE 18
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LIENS
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Tenant will not permit any mechanic's lien(s) or other liens to be
placed upon the Premises or the Building and nothing in this Lease shall be
deemed or construed in any way as constituting the consent or request of
Landlord, express or implied, by inference or otherwise, to any person for the
performance of any labor or the furnishing of any materials to the Premises, or
any part thereof, nor giving Tenant any right, power, or authority to contract
for or permit the rendering of any services or the furnishing of any materials
that would give rise to any mechanics' or other liens against the Premises. In
the event any such lien is attached to the Premises, then, in addition to any
other right or remedy of Landlord, Landlord may, but shall not be obligated to,
discharge the same. Any amount paid by Landlord for any of the aforesaid
purposes shall be paid by Tenant to Landlord on demand as Additional Rent.
ARTICLE 19
INSURANCE
19.1 Property Insurance. Landlord shall maintain property coverage
insurance on the Building Shell and appurtenant structures in the Common Areas
in such amounts as Landlord and any Mortgagees may deem necessary or
appropriate. Such insurance shall be maintained at the expense of Landlord (as a
part of Operating Expenses), and payments for losses thereunder shall be made
solely to Landlord or the Mortgages as their respective interests shall appear.
Tenant shall obtain and keep in force at all times during the Lease Term, a
policy or policies of insurance covering loss or damage to all of the
improvements, betterments, income and business contents located within the
Premises other than the Building Shell (including all improvements constructed
pursuant to Exhibit "D") in the amount of the full replacement value thereof as
ascertained by the Tenant's insurance carrier, as the same may exist from time
to time, against all perils normally covered in an "all risk" policy (including
the perils of flood and surface waters), as such term is used in the insurance
industry; provided, however, that Tenant shall have no obligation to insure
against earthquake.
19.2 Liability Insurance Tenant shall, at Tenant's expense, maintain a
policy of Commercial General Liability insurance insuring Landlord and Tenant
against liability arising out of the ownership, use, occupancy or maintenance of
the Premises. Such insurance shall be on an occurrence basis providing
single-limit coverage in an amount not less than One Million Dollars
($1,000,000) per occurrence. The initial amount of such insurance shall be
subject to periodic increase upon reasonable demand by Landlord based upon
inflation, increased liability awards, recommendation of professional insurance
advisers, and other relevant factors. However, the limits of such insurance
shall not limit Tenant's liability nor relieve Tenant of any obligation
hereunder. Landlord shall be named as an additional insured on said policies and
the
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<PAGE>
policies shall contain the following provision: "Such insurance as afforded by
this policy for the benefit of Landlord shall be primary as respects any claims,
losses or liabilities arising out of the use of Premises by the Tenant or by
Tenant's operation and any insurance carried by Landlord shall be excess and
non-contributing." The policy shall insure Tenant's performance of the indemnity
provisions of Articles 14 and 20.
19.3 Requirements for Insurance Policies. Insurance required to be
maintained by Tenant hereunder shall be in companies holding a "General
Policyholders' Rating" of A or better and a "financial rating" of 10 or better,
as set forth in the most current issue of "Best's Insurance Guide." Tenant shall
promptly deliver to Landlord, within thirty (30) days of the Commencement Date,
original certificates evidencing the existence and amounts of such insurance. No
such policy shall be cancelable or subject to reduction of coverage except after
sixty (60) days prior written notice to Landlord. Tenant shall, within thirty
(30) days prior to the expiration, cancellation or reduction of such policies,
furnish Landlord with renewals or "binders" thereof. Tenant shall not do or
permit to be done anything which shall invalidate the insurance policies
required under this lease.
19.4 Waiver of Subrogation Rights. Tenant and Landlord shall obtain
from the issuer of the insurance policies referred to in Section 19.1 a waiver
of subrogation provision in said policies and Tenant and Landlord hereby
release, relieve and waive any and all rights of recovery against Landlord or
Tenant, or against employees, officers, agents and representatives of Landlord
or Tenant, for loss or damage arising out of or incident to the perils insured
against under Section 19.1 which perils occur in, on or about the Premises or
the
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Building, whether due to the negligence of Landlord or Tenant or their agents,
employees, contractors or invitees. The extent of the waiver described in the
immediately preceding sentence is limited to the extent of insurance carried by
Landlord and Tenant pursuant to Section 19.1 of this Lease.
ARTICLE 20
INDEMNITY
Tenant shall indemnify and hold harmless landlord and all agents,
servants and employees of Landlord from and against all claims, losses, damages,
liabilities, expenses (including reasonable attorneys' fees), penalties and
charges arising from or in connection with (i) Tenant's use of the Premises
during the Lease Term, or (ii) the conduct of Tenant's business, or (iii) any
activity, work or things done, permitted or suffered by Tenant in or about the
Premises during the Lease Term. Tenant shall further indemnify and hold harmless
Landlord from and against any and all claims, loss, damage, liability, expense
default in the performance of any obligation on Tenant's part5 to be performed
under the terms of this Lease, or arising
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<PAGE>
from any negligence of Tenant, or any of Tenant's agents, contractors, or
employees, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord, shall defend the same at Tenant's expense by legal counsel
reasonably satisfactory to Landlord. Tenant, as a material part of its
consideration to Landlord, hereby assumes all risk of damage to property or
injury to persons in or upon the Premises arising from any cause and Tenant
hereby waives all claims in respect thereof against Landlord. Notwithstanding
the foregoing, Tenant shall not be required to defend, save harmless or
indemnify Landlord from any liability for injury, loss, accident or damage to
any person or property resulting from Landlord's negligence or willful acts or
omissions, or those of Landlord's officers, agents, contractors or employees.
Tenant's indemnity is not intended to nor shall it relieve any insurance carrier
of its obligations under policies required to be carried by Tenant pursuant to
the provisions of this Lease to the extent that such policies cover the results
of negligent acts or omissions of Landlord, its officers, agents, contractors or
employees, or the failure of Landlord to perform any of its obligations under
this Lease.
ARTICLE 21
PROPERTY DAMAGE
If the Premises or any part thereof shall be damaged by fire or
other peril, Tenant shall give prompt written notice thereof to Landlord. In
case the Building shall be so damaged that substantial alteration or
reconstruction of the Building shall, in Landlord's sole opinion, be required
(whether or not the Premises shall have been damaged by such peril) or in the
event of any Mortgagee shall require that the insurance proceeds payable as a
result of a peril be applied to the payment of the mortgage debt or in the event
of any material uninsured loss to the Building, Landlord may, at its option,
terminate this Lease by notifying Tenant in writing of such termination within
ninety (90) days after the date of such casualty. If Landlord does not thus
elect to terminate this Lease, Landlord shall, as Landlord's sole obligation,
commence and proceed with reasonable diligence to restore the Building Shell to
substantially the same condition in which it was immediately prior to the
occurrence of the peril. When the Building Shell has been restored by Landlord,
Tenant shall complete the restoration of the Premises, including the
reconstruction of all improvements in order to complete the Premises and restore
the Premises to the same condition and build-out as prior to the casualty,
including all improvements constructed pursuant to Exhibit "D." Any planes and
specifications for such restoration and reconstruction shall be subject to the
approval of Landlord. All insurance proceeds payable pursuant to policies
maintained by Tenant pursuant to Section 19.1 shall be applied by Tenant to such
reconstruction. Landlord shall not be liable for any inconvenience or annoyance
to Tenant or injury to the business of Tenant resulting in any way from such
damage or the repair thereof, except that, subject to the provisions of the next
sentence, Landlord shall allow Tenant a fair diminution of rent to the extent
the Premises are unfit for occupancy during the period commencing as of the date
of the casualty and continuing for the period of time, as determined by
Landlord, required for Tenant
-14-
25
<PAGE>
and Landlord to complete the repairs described in this Article 21. If the
Premises or any other portion of the Building is damaged by fire or other peril
resulting form the fault or negligence of Tenant or any of Tenant's agents,
employees, or invitees, the rent hereunder shall not be diminished during the
repair of such damage and Tenant shall be liable to Landlord for the cost of the
repair and restoration of the Building caused thereby to the extent such cost
and expense are not covered by insurance proceeds.
ARTICLE 22
CONDEMNATION
If the whole or substantially the whole of the Building or the
Premises shall be taken for any public or quasi-public use, by right of eminent
domain or otherwise or shall be sold in lieu of condemnation, then this Lease
shall terminate as of the date when physical possession of the Building or the
Premises is taken by the condemning authority. If less than the whole or
substantially the whole of the building or the Premises is thus taken or sold,
Landlord (whether or not the Premises are affected thereby) may terminate this
Lease by giving written notice thereof to Tenant, in which event this Lease
shall terminate as of the date when physical possession of such portion of the
Building or Premises is taken by the condemning authority. If the Lease is not
so terminated upon any such taking or sale, the Base Rent payable hereunder
shall be diminished by an equitable amount, and Landlord shall, to the extent
Landlord deems feasible, restore the Building and the Premises to substantially
their former condition, but such work shall not exceed the scope of the work
done by Landlord in originally constructing the Building and installing Building
Standard Improvements in the Premises, nor shall Landlord in any event be
required to spend for such work an amount in excess of the amount received by
Landlord as compensation for such taking. All amounts awarded upon a taking of
any part or all or the Building or the Premises shall belong to Landlord, and
Tenant shall not be entitled to and expressly waives all claims to any such
compensation.
ARTICLE 23
DAMAGES FROM CERTAIN CAUSES
Landlord shall not be liable to Tenant for any loss or damage to any
property or person occasioned by theft, fire, act of God, public enemy,
injunction, riot, strike, insurrection, war, court order, requisition, or order
of governmental body or authority or by any other cause beyond the control of
Landlord. In addition, Landlord shall not be liable for any damage or
inconvenience which may arise through repair or alteration of any part of the
Building or Premises.
ARTICLE 24
EVENTS OF DEFAULT
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<PAGE>
The following events shall be deemed to be events of default
("Events of Default") by Tenant under this Lease:
(a) If Tenant abandons the Premises or if Tenant vacates the
Premises for thirty (30) consecutive days;
(b) If Tenant fails to pay Rent or any other charge required to be
paid by Tenant, as and when due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of ten (10) days after written
notice from Landlord; provided that if more than ten (10) days are
required to complete such performance, Tenant shall not be in default if
Tenant commences such performance within such ten (10) day period and
thereafter diligently pursues its completion;
(d) If (i) Tenant makes a general assignment or general arrangement
for the benefit of creditors; (ii) a petition for adjudication of
bankruptcy or for reorganization or rearrangement is filed by or against
Tenant and is not dismissed within thirty (30) days; (iii) a trustee or
receiver is appointed to take possession of substantially all of Tenant's
assets located at the Premises or of
-15-
Tenant's interest in this Lease and possession is not restored to Tenant
within thirty (30) days; or (iv) substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease is subjected
to attachment, execution or other judicial seizure which is not discharged
within thirty (30) days. If a court of competent jurisdiction determines
that nay of the acts described in this subsection (d) is not a default
under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant
transfers Tenant's interest hereunder, then Landlord shall receive, as
Additional Rent, the difference between the rent (or any other
consideration) paid in connection with such assignment or sublease and the
rent payable by Tenant hereunder; or
(a) If any representation or warranty made by Tenant or by a
subtenant or assignee in connection with this Lease shall have been false
or misleading as of the date such representation or warranty was made.
ARTICLE 25
LANDLORD'S REMEDIES
27
<PAGE>
Upon the occurrence of any Event of Default by Tenant, Landlord
may at any time thereafter, with or without notice or demand and without
limiting Landlord in the exercise of any right or remedy which Landlord
may have:
(a) Terminate Tenant's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Tenant
shall immediately surrender possession of the Premises to Landlord. In
such event, Landlord shall be entitled to recover from Tenant all damages
incurred by Landlord by reason of Tenant's default, including without
limitation (i) the worth at the time of the Award of the unpaid Base Rent,
Additional Rent and other charges which had been earned at the time of the
termination; (ii) the worth at the time of the award of the amount by
which the unpaid Base Rent, Additional Rent and other charges which would
have been earned after termination until the time of the award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; (iii) the worth at the time of the award of the amount by which
the unpaid Base Rent, Additional Rent and other charges which would have
been paid for the balance of the Lease term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; and (iv) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform its obligations under the Lease or which in the ordinary course of
things would be likely to result therefrom, including, but not limited to,
any costs or expenses incurred by Landlord in maintaining or preserving
the Premises after such default, the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation incurred
in connection therewith, and any real estate commission paid or payable.
As used in subparts (i) and (ii) above, the "worth at the time of the
award" is computed by allowing interest on unpaid amounts at the rate of
eighteen percent (18%) per annum, or such lesser amount as may then be the
maximum lawful rate, accruing the date such payments are due until paid.
As used in subpart (iii) above, the "worth at the time of the award" is
computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of the award, plus one percent
(1%);
(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant shall have abandoned
the Premises. In such event, Landlord shall be entitled to enforce all of
Landlord's rights and remedies under this Lease, including the right to
recover Rent as it becomes due hereunder. Landlord's election to maintain
Tenant's right to possession shall not prejudice Landlord's right, at any
time thereafter to terminate
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Tenant's right to possession and proceed in accordance with Section 25 (a)
above; or
(C) Pursue any other remedy now or hereafter available to Landlord
under Laws or Judicial decisions of the State of Nevada.
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Landlord's exercise of any right or remedy shall not prevent it from
exercising any other right or remedy.
ARTICLE 26
LANDLORD'S DEFAULT
Landlord shall be in default hereunder in the event Landlord has not
begun and pursued with reasonable diligence the cure of any failure of
Landlord to meet its obligations hereunder within thirty (30) days of
receipt by Landlord of written notice from Tenant of the alleged failure
to perform. In no event shall Tenant have the right to terminate or
rescind this Lease as a result of Landlord's default as to any covenant or
agreement contained in this Lease or as a result of the breach of any
promise or inducement hereof, whether in the Lease or elsewhere. Tenant
hereby waives such remedies of termination and rescission and hereby
agrees that Tenant's remedies for default hereunder and for breach of any
promise or inducement shall be limited to a suite for damages and/or
injunction. In addition, Tenant hereby covenants that, prior to the
exercise of any such remedies, it will give any Mortgagee notice and a
reasonable time to cure any default by Landlord.
ARTICLE 27
PEACEFUL ENJOYMENT
Tenant shall, and may peacefully have, hold, and enjoy the Premises,
subject to the other terms hereof, provided that Tenant pays the Rent and
other sums herein recited to be paid by Tenant and performs all of
Tenant's covenants and agreements herein contained. This covenant and any
and all other covenants of Landlord shall be binding upon Landlord and its
successors only with respect to breaches occurring during its or their
respective periods of ownership of Landlord's interest hereunder. Landlord
shall be entitled to cause Tenant to relocate from the Premises to other
space (a "Relocation Space") within the Building at any time after
reasonable written notice of Landlord's election (not in excess of ninety
(90) days) is given to Tenant. Any such relocation shall be entirely at
the expense of Landlord or the third party tenant replacing Tenant in the
Premises. Such a relocation shall not terminate or otherwise affect or
modify this Lease except that from and after the date of such relocation,
"Premises" shall refer to the Relocation Space into which Tenant has been
moved, rather than the original Premises as herein defined.
ARTICLE 28
HOLDING OVER
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In the event of holding over by Tenant after the expiration or other
termination of this Lease or in the event Tenant continues to occupy the
Premises after the termination of Tenant's right of possession pursuant to
Article 25 above, Tenant shall, throughout the entire holdover period, pay rent
equal to twice the Base Rent and Additional Rent which would have been
applicable had the term of this Lease continued through the period of such
holding over by Tenant. If Tenant remains in possession of all or any part of
the Premises after the expiration of the Lease Term, with the express written
consent of Landlord: (a) such tenancy will be deemed to be a periodic tenancy
from month-to-month only; (b) such tenancy will not constitute a renewal or
extension of this Lease for any further term; and (c) such tenancy may be
terminated by Landlord upon the earlier of thirty (30) days prior written
notice or the earliest date permitted by law. Such month-to-month tenancy will
be subject to every other term, condition, and covenant contained in this Lease
including the Base Rent and Additional Rent provisions. Nothing contained in
this Article 38 shall be construed as consent by Landlord to any holding over
of the Premises by Tenant, and Landlord expressly reserves the right to require
Tenant to surrender possession of the Premises to Landlord upon the expiration
or earlier termination of this Lease. If Tenant fails to surrender the Premises
upon the expiration or earlier termination of this Lease despite demand to do
so by Landlord, Tenant
-17-
shall indemnify and hold Landlord harmless from all loss or liability,
including, without limitation, any claim made by any succeeding tenant founded
on or resulting form such failure to surrender.
ARTICLE 29
SUBORDINATION TO MORTGAGE
Tenant accepts this Lease subject and subordinate to any mortgage
deed of trust or other lien presently existing or hereafter arising upon the
Premises, upon the Building as a whole, and to any renewals, refinancing and
extensions thereof, but Tenant agrees that any such Mortgagee shall have the
right at any time to subordinated such mortgage, deed of trust or other lien to
this Lease on such terms and subject to such conditions as such Mortgagee may
deem appropriate in its discretion. Landlord is hereby irrevocably vested with
full power and authority to subordinate this Lease to any mortgage, deed of
trust or other lien now existing or hereafter placed upon the Premises, or the
Building as a whole, and Tenant agrees upon demand to execute such further
instruments subordinating this Lease or attorning to the holder of any such
liens as Landlord may request. In the event that any mortgage or deed of trust
is foreclosed or conveyance in lieu of foreclosure is made for any reason,
Tenant shall, if requested by the Mortgagee, attorn to and become the Tenant of
the successor-in-interest to Landlord and in such event Tenant hereby waives
its right under any current or future law which gives or purports to give
Tenant any right to terminate or otherwise adversely affect this Lease and the
obligations of Tenant hereunder. If in connection with obtaining construction,
interim or permanent financing for the Building, the lender shall request
modifications to this Lease as a condition to
30
<PAGE>
such financing, Tenant will not withhold or delay its consent thereto, provided
that such modifications do not increase the obligations of Tenant hereunder and
do not otherwise materially adversely affect Tenant's rights hereunder. In the
event that Tenant should fail to executes any instrument described in this
Article 29 promptly as requested, Tenant hereby irrevocably constitutes Landlord
as its attorney-in-fact to execute such instrument in Tenant's name, place and
stead, it being agreed that such power is one coupled with interest. Tenant
agrees that it will from time to time within ten (10) business days following a
request by Landlord execute and deliver to such persons as Landlord shall
request a statement in recordable form certifying that this Lease is unmodified
and in full force and effect (or if there have been modifications, that the same
is in full force and effect as so modified), stating the dates to which rent and
other charges payable under the Lease have been paid, stating that Landlord is
not in default hereunder (or if Tenant alleges a default stating the nature of
such alleged default) and further stating such other matters as Landlord shall
reasonably require. Tenant acknowledges that any such statement may be relied
upon by any Mortgagee, prospective Mortgagee, purchaser of the Building or any
interest therein.
ARTICLE 30
LANDLORD'S LIEN
Tenant hereby grants to Landlord a lien and security interest on
all property of Tenant now or hereafter placed in or upon the Premises, and
such Property shall be and remain subject to such lien and security interest of
Landlord for payment of all rent and other sums agreed to be paid by Tenant
herein. The provisions of this paragraph relating to such lien and security
interest shall constitute a security agreement under and subject to the Nevada
Uniform Commercial Code so that Landlord shall have and may enforce a security
interest on all property of Tenant now or hereafter placed in or on the
Premises, in addition to and cumulative of the Landlord's liens and rights
provided by law or by the other terms and provisions of this Lease. Tenant
agrees to execute as debtor such financing statement or statements as Landlord
now or hereafter may request. Landlord may at its election at any time file a
copy of this Lease as a financing statement. Notwithstanding the above,
Landlord shall neither sell nor withhold from Tenant, Tenant's business
records.
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ARTICLE 31
ATTORNEY'S FEES
In the event Tenant, defaults in the performance of any of the
terms of this Lease and Landlord employs an attorney in connection therewith,
Tenant agrees to pay Landlord's reasonable attorney's fees.
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ARTICLE 32
NO INPLIED WAIVER
The failure of Landlord to insist at any time upon the strict
performance of any covenant or agreement herein, or to exercise any option,
right, power or remedy contained in this Lease, shall not be construed as a
waiver or a relinquishment thereof for the future. No payment by Tenant or
receipt by Landlord of a lesser amount that the monthly installment of Rent due
under this Lease shall be deemed to be other than on account of the earliest
Rent due hereunder, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as Rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance of such rent or pursue any other
remedy in this Lease provided.
ARTICLE 33
PERSONAL LIABILITY
The liability of Landlord to Tenant for any default by Landlord
under the terms of this Lease shall be limited to the lesser of (i) the
interest of Landlord in the Building, or (ii) the interest Landlord would have
in said Building if the same were encumbered by third party debt in an amount
equal to eighty percent (80%) of the value of said Building (as such value is
determined by Landlord) and Tenant agrees to look solely to such amount for
recovery of any judgment form Landlord, it being intended that Landlord shall
not be personally liable for any judgment or deficiency.
ARTICLE 34
SECURITY DEPOSIT
The Security Deposit shall be held by Landlord without liability
for interest and as security for the performance by Tenant of Tenant's
covenants and obligations under this Lease, it being expressly understood that
the Security Deposit shall not be considered an advance payment of rental or a
measure of damages caused by Tenant in case of default by Tenant, Landlord may
commingle time, without prejudice to any other remedy, use the Security Deposit
to the extent necessary to make good any arrearage of rent or to satisfy any
other covenant oar obligation of Tenant hereunder. Following any such
application of the Security Deposit, Tenant shall pay to Landlord on demand the
amount so applied in order to restore the Security Deposit to its original
amount. If Tenant is not in default at the termination of this Lease, the
balance of the Security Deposit remaining after any such application shall be
returned by Landlord to Tenant. If Landlord transfers its interest in the
Premises during the term of this Lease, Landlord may assign the Security
Deposit to the transferee and thereafter shall have no further liability for
the return of such Security Deposit to Tenant.
ARTICLE 35
32
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NOTICE
Any notice in this Lease provided for must, unless otherwise
expressly provided herein, be in writing, and may, unless otherwise in their
Lease expressly provided, be given or be served by depositing the same in the
United States mail, postage paid and certified and addressed to the party to be
an officer of such party, or by prepaid telegram, when appropriate, addressed
to the party to be notified at the address stated in this Lease or such other
address, notice of which has been given to the other party. Notice deposited in
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the mail in the manner hereinabove described shall be effective from and after
the expiration of three (3) calendar days after it is so deposited.
ARTICLE 36
SEVERABILITY
If any term or provision of this Lease, or the application thereof
to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term or
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and enforced to the fullest extent
permitted by law notwithstanding the invalidity of any other term or provision
hereof.
ARTICLE 37
RECORDATION
Tenant agrees not to record this Lease or any memorandum hereof.
ARTICLE 38
GOVERNING LAW
This Lease and the rights and obligations of the parties hereto
shall be interpreted, construed, and enforced in accordance with the laws of
the State of Nevada.
ARTICLE 39
FORCE MAJEURE
33
<PAGE>
Whenever a period of time is herein prescribed for the taking of
any action by Landlord, Landlord shall not be liable or responsible for, and
there shall be excluded from the computation of such period of time, and delays
due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions, or any other cause whatsoever
beyond the control of Landlord.
ARTICLE 40
TIME OF PERFORMANCE
Except as expressly otherwise herein provided, with respect to all
required sets of Tenant, time is of the essence of this Lease.
ARTICLE 41
TRANSFERS BY LANDLORD
Landlord shall have the right to transfer and assign, in whole or
in part, all its rights and obligations hereunder and in the Building and
property referred to herein, and in such event and upon such transfer Landlord
shall be released from any further obligations hereunder, and Tenant agrees to
look solely to such successor in interest of Landlord for the performance of
such obligations.
ARTICLE 42
COMMISSIONS
Except for a commission to be paid by Landlord to Dunn Properties
("Broker") in accordance with a separate commission agreement to be entered
into by Landlord and Broker, Landlord and Tenant hereby indemnity and hold each
other harmless against any loss, claim, expense or liability with respect to
any of this Lease due to any action of the indemnifying party.
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ARTICLE 43
EFFECT OF DELIVERY OF THIS LEASE
Landlord has delivered a copy of this Lease to Tenant for Tenant's
review only, and the delivery hereof does not constitute an offer to Tenant or
option. This Lease shall not be
34
<PAGE>
effective until a copy executed by both Landlord and Tenant is delivered to and
accepted by Landlord.
ARTILCE 44
CORPORATE AUTHORITY; PRATNERSHIP AUTHORITY
If Tenant is a corporation, each person signing this Lease on
behalf of Tenant represents and warrants that he or she has full authority to
do so and that this Lease binds the corporation. Within thirty (30) days after
this Lease is signed, Tenant shall deliver to Landlord a certified copy a
resolution of Tenant's Board of directors authorizing the execution of this
Lease or other evidence that of such authority reasonably acceptable to
Landlord. If Tenant is a partnership, each person signing this Lease for Tenant
represents and warrants that he or she is a general partner of the partnership,
that he or she has full authority to sign for the partnership and that this
Lease binds the partnership and all general partners of the partnership. Tenant
shall give written notice to Landlord of any general partner's withdrawal or
addition. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a copy of Tenant's recorded statement of partnership or
certificate of limited partnership.
ARTICLE 45
JOINT AND SEVERAL LIABILITY
All parties signing this Lease as Tenant shall be jointly and
severally liable for all obligations of Tenant.
ARTICLE 46
INTERPRETATION
The captions of the Articles of this Lease, and each specific
Section within the respective Articles, are to assist the parties in reading
this Lease and are not a part of the terms or provisions of this Lease.
Whenever required by the context of this Lease, the singular shall include the
plural and the plural shall include the singular. The masculine, feminine and
neuter genders shall each include the other. In any provision relating to the
conduct, acts or omissions of Tenant, the term "Tenant" shall include Tenant's
agents, employees, contractors, invitees, successors or others using the
Premises with Tenant's expressed or implied permission.
ARTILCE 47
INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS
This Lease is the only agreement between the parties pertaining to
the lease of the Premises and no other agreements are effective. All amendments
to this Lease shall be in writing and signed by all parties. Any other
attempted amendment shall be void.
35
<PAGE>
ARTICLE 48
WAIVER OF JURY TRIAL
Landlord and Tenant by this Article 48 waive trial by jury in any
action, proceeding, or counterclaim brought by either of the parties to this
Lease against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's
use or occupancy of the Premises, or any other claims (except claims for
personal injury or property damage), and any emergency statutory or any other
statutory
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ARTICLE 49
NO MERGER
The voluntary or other surrender of this Lease by Tenant or the
cancellation of this Lease by mutual agreement of Tenant and Landlord or the
termination of this Lease on account of Tenant's default will not work a
merger, and will, at Landlord's option, (a) terminate all or any subleases and
subtenancies or (b) operate as an assignment to Landlord of all or any
subleases or subtenancies. Landlord's option under this Article 49 will be
exercised by written notice to Tenant and all known subleasees or subtenants in
the Premises or any part of the Premises.
ARTICLE 50
COUNTERPARTS
This Lease may be executed in counterparts, and, when all
counterpart documents are executed, the counterparts shall constitute a single
binding instrument.
ARTICLE 51
EXHIBITS
All Exhibits as listed on the "List of Agreements" attached hereto
are incorporated herein and made a part of this Lease for all purposes.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
(which may be in multiple original counterparts) as of the day and year first
above written.
Address: LANDLORD:
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3770 HUGHES PARKWAY ASSOCIATES 3770 HUGHES PARKWAY ASSOCIATES
LIMITED PARTNERSHIP LIMITED PARTNERSHIP, a
3800 Howard Hughes Parkway Nevada limited partnership
Las Vegas, Nevada 89109
Attention: Property Management By its managing partner:
HOWARD HUGHES PROPERTIES
LIMITED PARTNERSHIP, a
Delaware limited partnership
By its sole general partner:
THE HOWARD HUGHES CORPORATION,
A Delaware corporation
By: /s/ John A. Kilduff
Print Name: John A. Kilduff
-------------------------
Print Title: Executive Vice President
--------------------------
Address: TENANT:
- -------- ------
____________________________________ ROOM SYSTEMS FINANCE CORPORATION
____________________________________ a (TO BE INSERTED PRIOR TO NEVADA
EXECUTION) corporation
Attention:
---------------------------- By: /s/Derek K. Ellis
---------------------------------
Print Name: Derek K. Ellis
Print Title: Chief Financial Officer
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37
<PAGE>
Exhibit 10.04
MASTER CORPORATE AGREEMENT
This "Master Corporate Agreement" (this "Agreement") is entered into
as of the Execution Date set forth on Exhibit 1, attached hereto and
incorporated herein by reference, hereto by and between INNCO CORPORATION
("INNCO"), an Arizona corporation, which is a wholly-owned subsidiary of
DOUBLETREE HOTELS CORPORATION ("Doubletree"), a subsidiary of Promus Hotel
Corporation ("PHC"), and ROOMSYSTEMS INTERNATIONAL CORPORATION, (together with
any affiliates and subsidiaries ("RSI")).
1. INTENT OF AGREEMENT
The purpose of this Agreement is to set forth the terms and conditions
which shall be applicable to the acquisition or leasing by certain hotels of
certain products (referred to herein as the "Products") produced by or on behalf
of RSI during the term of this Agreement and to describe RSI's participation in
INNCO's preferred supplier network ("PSN") with respect to the Products. All of
the following Exhibits and Attachments to this Agreement are attached hereto and
are incorporated herein by reference:
Exhibit 1 - Basic Terms
Exhibit 2 - Definition of Products
Exhibit 3 - Pricing and Discount
Exhibit 4 - Volume Projection
Exhibit 5 - Marketing and promotional Agreements
Exhibit 6 - Intentionally left blank
Exhibit 7 - Compensation to INNCO for Program Administration
Exhibit 8 - Intentionally Left Blank
Exhibit 9 - Exemplar of Hotel Revenue Sharing Lease Agreement
Exhibit 10 - Hotel Installation Maintenance and License Agreement
2. DEFINITIONS
For the purposes of this Agreement, the following terms are hereby
defined:
2.1 Agreement Year: The twelve-month period commencing as of the
Commencement Date, or as of any anniversary of the Commencement Date and any
extension thereof.
2.2 Commencement Date: The date of commencement of the term of this
Agreement, as set forth on Exhibit 1.
2.3 Franchised Hotels: All Tradename Hotels which are operated under
franchise agreements where the franchisee thereunder is a party other than an
Affiliate.
2.4 Hotel Revenue Sharing Lease Agreement: That certain Hotel Revenue
Sharing Lease Agreement between RSI and any Participating Property, whereby RSI
leases the
<PAGE>
Products to the Participating Property and shares the revenues therefrom with
the Participating Property.
2.5 Managed Hotels: All hotels which are managed by any Affiliate
(whether as manager, tenant or otherwise), regardless of tradename affiliation
(if any).
2.6 Participating Properties: All hotels covered by this Agreement, as
set forth on Exhibit 1 and 1A, when referred to as a group. Individual hotels
hereafter are referred to as the "Participating Property."
2.7 Portfolio Hotels: All Tradename Hotels, Managed Hotels, Franchised
Hotels, and any other hotels utilizing INNCO's purchasing services.
2.8 Products. The items described on Exhibit 2.
2.9 Termination Date: As set forth on Exhibit 1.
2.10 Tradename Hotels: All hotels operating under the tradenames set
forth on Exhibit 1 and 1A and/or any other tradename(s) (collectively,
"Tradenames") now or hereafter utilized by Doubletree or its affiliates
(collectively, "DT Affiliates") or by Promus Hotels, Inc. ("PHI"), a subsidiary
of PHC, or its affiliates (collectively "PHI Affiliates") (DT Affiliates and PHI
Affiliates are individually referred to as "Affiliate" and collectively as
"Affiliates") including, without limitation, hotels operated by any Affiliate
and hotels operated by others under franchise agreements with any Affiliate.
3. TERM
3.1 Term: The term of this Agreement shall commence as of the
Commencement Date and, subject to the provisions of this Agreement, shall expire
as of the Termination Date, unless extended by the parties according to Exhibit
1.
3.2 Termination without Cause. This Agreement shall continue until
terminated. This Agreement may be terminated by either party without cause and
without penalty by giving the other party notice as specified on Exhibit 1.
3.3 Termination based upon Material Breach by RSI. INNCO may terminate
this Agreement in the event of a material breach by RSI. For the purposes
hereof, a "Material Breach by RSI" shall be defined as any one or more of the
following:
(a) RSI's failure to make a payment when due which is not cured within
forty-five (45) days of written notice.
(b) RSI's failure to supply satisfactory Product quality and/or timely
service or performance, as reasonably determined by INNCO within forty-five
(45) days of written notice.
<PAGE>
(c) RSI's failure to comply with any other (i.e., other than the defaults
listed in paragraphs (a) and (b) of this Section 3.3) material obligation
under this Agreement which is not cured within forty-five (45) days of
written notice.
(d) RSI is adjudicated insolvent by any court or tribunal, or files a
voluntary petition of bankruptcy, or enters into an arrangement with its
creditors, or applies for or consents to the appointment of a receiver or
trustee of itself or its property, or makes an assignment for the benefit of
creditors, or suffers or permits the entry of an order adjudicating it to be
bankrupt or insolvent or appointing a receiver or trustee of itself or of its
property.
(e) An involuntary petition of bankruptcy if filed against RSI and such
petition remains undischarged or unstayed for a period of forty-five (45)
days.
3.4 Termination based upon Non-Competitive Price Increases. If INNCO
determines that any increase in the price of the Product which is permitted
pursuant to Exhibit 3 is unacceptable to INNCO, INNCO may terminate this
Agreement on thirty (30) days' written notice to RSI.
3.5 Termination based upon Material Breach by INNCO. RSI may terminate
this Agreement in the event of a material breach by INNCO. For the purposes
hereof, a "Material Breach by INNCO" shall be defined as any one or more of the
following:
(a) INNCO's failure to comply with any material obligation under this
Agreement which is not cured within forty-five (45) days of written notice.
(b) INNCO is adjudicated insolvent by any court or tribunal, or files a
voluntary petition of bankruptcy, or enters into an arrangement with its
creditors, or applies for or consents to the appointment of a receiver or
trustee of itself or its property, or makes an assignment for the benefit of
creditors, or suffers or permits the entry of an order adjudicating it to be
bankrupt or insolvent or appointing a receiver or trustee of itself or of its
property.
(c) An involuntary petition of bankruptcy is filed against INNCO and such
petition remains undischarged or unstayed for a period of forty-five (45)
days.
3.6 Effect of Termination. In the event of expiration or termination
of this Agreement pursuant to Sections 3.1, 3.2, 3.3 or 3.4, RSI acknowledges
and agrees to the following, in addition to any other remedy available to INNCO
hereunder:
(a) INNCO shall be entitled to notify the Participating Properties of the
occurrence of such events;
(b) RSI shall provide payment to INNCO for all contracts or purchase orders
made prior to the termination or expiration date whether RSI has invoiced
before or after such date, and shall make payments to INNCO for such
contracts or purchase orders, as well as for all
<PAGE>
amounts owed to INNCO, on or before 30 days after the expiration or
termination of this Agreement.
3.7 Partial Termination as to any Participating Property based upon
Material Breach by such Participating Property: RSI may terminate this Agreement
as to any Participating Property based upon a material breach by such
Participating Property. In the event of such termination, the Participating
Property with respect to which RSI has exercised its termination right shall no
longer be considered to be a Participating Property under this Agreement. In no
event, however, shall a breach of this Agreement by any Participating Property
be considered to be a breach by any other Participating Property or by INNCO.
For the purposes hereof, a "material breach" by a Participating Property shall
be defined as any one or more of the following:
(a) A failure by such Participating Property to make a payment when due which
is not cured within ten (10) days of written notice to such Participating
Property.
(b) The failure by such Participating Property to comply with any other
(i.e., other than the defaults listed in paragraph (a) of this Section 3.6)
material obligation under this Agreement which is applicable to such
Participating Property which is not cured within forty-five (45) days of
written notice to such Participating Property.
(c) Such Participating Property is adjudicated insolvent by any court or
tribunal, or files a voluntary petition of bankruptcy, or enters into an
arrangement with its creditors, or applies for or consents to the appointment
of a receiver or trustee of itself or its property, or makes an assignment
for the benefit of creditors, or suffers or permits the entry of an order
adjudicating it to be bankrupt or insolvent or appointing a receiver or
trustee of itself or of its property.
(d) An involuntary petition in bankruptcy is filed against such Participating
Property and such petition remains undischarged or unstayed for a period of
thirty (30) days.
4. DESIGNATION OF RSI AS AN APPROVED SUPPLIER OF MINIBARS
4.1 RSI as Approved Supplier. Subject to the provisions of this
Agreement, during the term of this Agreement, RSI is hereby designated as
INNCO's exclusive supplier of minibars, including the Products, to the
Franchised Hotels, Managed Hotels, Portfolio Hotels, and Tradename Hotels,
subject to the termination provisions set forth in Exhibit 1. As such, INNCO
shall include RSI in INNCO's PSN with respect to the Products. INNCO shall
include in the PSN supplier materials those descriptive materials about the
Products that have been furnished by RSI and approved by INNCO. The PSN has been
designed to enhance Participating Properties' relationship with RSI in the PSN.
Any services performed by INNCO or any Affiliate hereunder are not intended to
be, nor shall they be deemed to be, a warranty or endorsement for any purpose
whatsoever of the Products.
<PAGE>
4.2 RSI Responsibility for Products. RSI agrees that the Products
shall be manufactured, stored and shipped by or under the direct control of RSI
in strict compliance with the Specifications set forth on Exhibit 2. Any
deviation or modification whatsoever by RSI from the specifications set forth in
Exhibit 2, attached hereto, shall be prohibited unless approved by INNCO in a
written amendment to this Agreement.
4.3 RSI Warranties. RSI hereby guarantees that the Products contained
in any shipment or other delivery hereafter made by it, or by any of its
subsidiaries or divisions, to any Participating Property will comply with all
applicable laws, ordinances and regulations.
4.4 RSI Pricing. RSI shall provide the Products to the Participating
Properties in accordance with the pricing provisions set forth in Exhibit 3.
Exhibit 9 describes the provisions of the Hotel Revenue Sharing Lease Agreement
between RSI and any of the Participating Properties. Exhibit 10 describes the
Hotel Installation, Maintenance and License Agreement between the Participating
Properties and RSI.
4.5 INNCO's Obligations with Respect to the Products; Volume
Projection. INNCO agrees that, during the term of this Agreement, INNCO will use
its reasonable efforts to cause its Affiliates to install the Products. The
parties currently anticipate that the Participating Properties will install the
Product in accordance with the volume projections for each year set forth on
Exhibit 4. Nothing herein, however, shall be construed as a guarantee by INNCO
that such volume projections will be achieved, and neither INNCO nor any of the
Participating Properties shall have any liability to RSI in the event that such
volume projections are not achieved.
4.6 Marketing and Merchandising Support. In order to further the
interests of the parties in promoting the Products at the Participating
Properties, RSI shall provide to INNCO the marketing and merchandising support
and materials as described on Exhibit 5.
4.7 Marketing, Advertising and Promotional Tradename Support: In order
to further the interest of the Tradename Hotels in the Participating Properties,
the parties agree to review RSI's marketing, advertising and promotional
activities and events, and where, in the opinion of INNCO, Doubletree, or PHC,
such an activity or event would provide Tradename benefit by being associated
with that Tradename, RSI will provide the opportunity to participate in same.
4.8 Operational Support. RSI shall provide to each of the
Participating Properties operational support with respect to the use of the
Products in accordance with Exhibit 10.
4.9 Compensation to INNCO for Program Administration. In consideration
of INNCO's administering the Product placement for the Participating Properties
under this Agreement, RSI shall pay to INNCO compensation for program
administration in accordance with Exhibit 7.
4.10 Preferred Lodging. RSI agrees to use its best efforts to promote
the Tradename Hotels as a preferred lodging choice for its employees, officers,
directors, affiliates, agents, and
<PAGE>
representatives for business and leisure travel. RSI shall provide written
confirmation of such efforts within 30 days of the execution of this Agreement.
5. PROCEDURES FOR PLACING THE PRODUCTS BY THE PARTICIPATING PROPERTIES
5.1 Placement of the Products. All agreements shall be executed
directly by the Participating Properties. INNCO shall not be responsible for
any act or omission of any Participating Property. Without limiting the
foregoing, INNCO shall not be responsible for any unpaid Product ordered by
or delivered to any Participating Property, for any unsold contract balances
relating to Products installed by any Participating Property, or any other
circumstances relating to, or actions of, any Participating Property.
5.2 Terms and Conditions of Placement. The terms and conditions
applicable to placement of the Products installed by any Participating Property
pursuant to this Agreement shall be as set forth in this Agreement. The terms
and conditions applicable to the placement of the Products leased by any
Participating Property pursuant to revenue sharing and pursuant to this
Agreement shall be as set forth in this Agreement, including without limitation,
the terms and conditions set forth on Exhibit 9 attached hereto. If the terms
and conditions of any purchase order or agreement, contract or receipt for the
Products now or hereafter placed hereunder differ from the terms and conditions
of this Agreement, the terms and conditions of this Agreement shall apply, as
any such disparity may apply to RSI and INNCO.
5.3 Type of Placement. For purposes of this Agreement, RSI shall offer
the Products to the Participating Properties for placement according to the
following programs:
(a) Purchase. The Participating Properties may purchase the Products
according to the pricing schedule set forth in Exhibit 3.
(b) Lease. The participating Properties may lease the Products according to
the pricing schedule outlined in Exhibit 3.
(c) Revenue Sharing. The Participating Properties and RSI may enter into a
revenue sharing arrangement, whereby RSI places the Products with the
Participating Properties free of charge and all parties share revenue,
according to the terms and conditions of the Hotel Revenue Sharing Lease
Agreement, attached hereto as Exhibit 9.
6. REPORTING OF PRODUCT PLACEMENT AND INNCO'S AUDIT RIGHTS
6.1 Reports. RSI shall provide to INNCO reports of Products placed in
Participating Properties. If distribution information is not available for any
Participating Property, other substantiating information reasonably acceptable
to INNCO (e.g., internal invoices) may suffice.
<PAGE>
6.2 INNCO's Audit Rights. INNCO shall have the right, upon reasonable
advance notice to RSI, to audit RSI's books and records to the extent necessary
to determine whether INNCO has been paid the amounts due to INNCO under this
Agreement. If, after such audit, it is determined that there has been an
underpayment to INNCO of more than five (5%) percent, RSI shall reimburse INNCO
for the reasonable costs incurred by INNCO in performing such audit.
7. INSPECTION OF RSI'S FACILITIES
INNCO shall have the right from time to time to inspect RSI's
facilities where the Product is made upon reasonable notice to RSI. The
inspections must be made during normal working hours and shall cause minimum
disruption in the facility. INNCO must present proper identification at the
facility prior to entering and the inspection will be limited to that area of
the facility where the specific Products placed with the Participating
Properties are manufactured, with the specific exclusion of any confidential
equipment or components. INNCO will be required to adhere to any health and
safety requirements or other directives normally implemented at the facility.
INNCO shall treat all of RSI's information as confidential, except that
disclosure of such information may be made by INNCO as required by law, court
order, or order of any governmental authority; or in connection with any
judicial or other dispute resolution proceedings between INNCO and/or any of
the Participating Properties, and RSI. Information shall not be considered to
be confidential if such information (a) is already known to INNCO at the time
of its disclosure by RSI, (b) is or becomes available to the public through
no fault of INNCO, or (c) is later received by INNCO from a third party
having legal right to make such disclosure.
8. INDEMNIFICATION
RSI shall indemnify, defend and hold INNCO, Doubletree, and PHC
harmless from and against any and all liabilities, losses, costs, damages,
injuries, claims, suits, judgments, causes of action and expenses (including
reasonable attorneys' fees) suffered or incurred as a result of the willful
negligence of RSI or any defect caused by RSI in any Product sold, leased or
placed with INNCO, Doubletree and PHC, provided RSI is given reasonable notice
of such damages, claims, etc., and provided sole right of defending such claims,
and the right to subrogate such rights.
9. INSURANCE
RSI agrees to maintain, during the entire term of this Agreement, a
commercial general liability insurance policy on a claims occurred basis,
including product liability coverage and contractual liability coverage insuring
against the liabilities assumed by RSI under this Agreement, with a minimum
combined single limit of not less one million dollars ($1,000,000) per
occurrence for damage, injury and/or death to property and/or persons. Upon
execution of this Agreement, and from time to time thereafter during the term of
this Agreement, RSI shall deliver to INNCO a certificate, in form reasonably
satisfactory to INNCO, evidencing that RSI is carrying such insurance and that
such insurance is in force and effect. INNCO shall notify RSI
<PAGE>
of any such claims within forty-five (45) days of such occurrence. RSI shall
deliver to INNCO a certificate, in form reasonably satisfactory to INNCO,
evidencing that RSI is carrying such insurance and that such insurance is in
force and effect, that INNCO is an additional insured and certificate holder,
and that such insurance shall not lapse or be canceled or modified unless INNCO
has been given forty-five (45) days prior written notice of the intended
cancellation or modification. Without limitation, the obligation under this
Section shall survive termination of this Agreement.
10. TRADEMARKS
10.1 Use. During the term hereof, RSI shall not use in any manner
whatsoever any tradenames, or any logos, trademarks, service marks or any other
identifying symbol of INNCO or any other DT Affiliates (collectively, the
"Trademarks"), unless RSI obtains INNCO's prior written consent.
10.2 Other Use. With respect to the Products, RSI is hereby granted
the non-exclusive right to use the Trademarks, service marks and other related
marks created or developed or which Doubletree or PHI otherwise has rights to
license (the "Marks") on the Products as set forth on Exhibit 1A and subject to
the following conditions: (a) RSI shall use only those Marks that INNCO approves
in writing for RSI's use. Such Marks shall only be used in the form approved by
INNCO and only on the Product(s) or on the packaging or advertising of the
Product(s), which packaging and advertising must be approved by INNCO. RSI shall
not use the Marks in any media advertising, except as set forth in this
paragraph. (b) Prior to using the Marks, RSI shall provide INNCO copies of any
materials, including advertising, packaging or promotional materials and
packaging, in connection with which the Marks are intended to be used. (c) RSI
agrees with regard to each Product manufactured or offered for sale pursuant to
this Agreement that it shall submit a sample of said Product, together with its
own product specifications, to INNCO for INNCO's approval prior to manufacture
or distribution of the Product, and that every six months RSI shall submit to
INNCO for inspection a sample of each Product or packaging that bears the Marks,
and shall also confirm in writing that the Product(s) is manufactured in
accordance with specifications and samples approved by INNCO. (d) RSI warrants
that the Product(s) shall be identical to the samples and specifications
approved by INNCO and that it will withhold from distribution or sale any
Product or packaging bearing the Marks that fail to conform to the approved
specifications or which fail for any reason to pass inspection by INNCO and that
it will upon request by INNCO destroy (or remove the Marks from) said Product.
RSI shall assure that the Product(s) is merchantable and fit for the particular
purpose, if any, specified by INNCO. (e) RSI acknowledges INNCO, Doubletree and
PHI's respective exclusive right, title and interest in the Marks and to any
other trademarks, trade names, and service marks which INNCO, Doubletree, PHI,
or their
<PAGE>
parent, divisions, subsidiaries, affiliates or assigns may adopt, use or
register, and will not at any time do or cause to be done any act or thing
contesting or in any way impairing or intending to impair any part of said
right, title and interest. RSI agrees and undertakes that it will not at any
time either during the term of this Agreement or after its expiration or
termination, adopt, use or register, without INNCO's prior written approval, any
word or symbol or combination thereof which is similar in any respect to the
Marks. In order to protect the rights of INNCO, Doubletree, PHI and their
parent, divisions, subsidiaries, affiliates and assigns to their Marks, the RSI
shall not manufacture or distribute or permit the manufacture or distribution of
the Product(s) bearing the Marks owned by INNCO, Doubletree, PHI or their
parent, divisions, subsidiaries, affiliates or assigns outside the United States
without INNCO's prior written approval.
10.3 Literature. INNCO may use RSI's manuals, schematics and
merchandising literature for any purpose previously approved by RSI.
10.4 Goodwill. INNCO acknowledges and desires to protect the goodwill
associated with any of RSI's trademarks, trade names or service marks and will
identify same with appropriate marks.
11. CONFIDENTIALITY
11.1 RSI's Confidentiality. RSI shall maintain as confidential and
shall not disclose to any person outside its employ any information which RSI
obtains or learns of from INNCO or from the Participating Properties by
virtue of this Agreement, including but not limited to information relating
to INNCO's confidential marketing information, such as product introduction
dates or product volume; the economic terms of this Agreement or other
information relating to the Products and any unique final Product
specifications INNCO discloses to RSI in writing marked confidential.
Excluded from this condition is any information disclosure of which is
required (a) by law, court order, or order of any governmental authority, or
(b) in connection with any judicial or other dispute resolution proceedings
between INNCO and/or any of the Participating Properties, and RSI.
Information will not be considered to be confidential if such information (a)
was already known to RSI at the time of its disclosure by INNCO, (b) is or
becomes available to the public through no fault of RSI, or (c) is later
received by RSI from a third party having legal right to make such
disclosure. This obligation of RSI shall survive the termination of this
Agreement. Upon termination of this Agreement, RSI shall promptly return to
INNCO all confidential material and all copies.
11.2 INNCO's Confidentiality. INNCO shall maintain as confidential and
shall not disclose to any person outside its employ any information which it
obtains or learns of from RSI or from any of RSI's affiliates by virtue of this
Agreement, including but not limited to information relating to RSI's
confidential manufacturing, revenue and/or marketing information; the economic
terms of this Agreement or other information relating to the Products and any
unique final Product specifications RSI discloses to INNCO in writing marked
confidential. Excluded from this condition is any information disclosure of
which is required (a) by law, court order, or order of any governmental
authority, or (b) in connection with any judicial or other dispute resolution
proceedings between RSI and/or any of the Participating Properties, and INNCO.
Information will not be considered to be confidential if such information (a)
was already known to INNCO at the time of its disclosure by RSI, (b) is or
becomes available to the public through no fault of INNCO, or (c) is later
received by INNCO from a third party having legal right to make such disclosure.
This obligation of INNCO shall survive the termination of
<PAGE>
this Agreement. Upon termination of this Agreement, INNCO shall promptly return
to RSI all confidential material and all copies.
12. NOTICES
All notices required hereunder shall be in writing and shall be deemed
given, whether actually received or not, (a) when delivered in person, (b) three
(3) business days after such item is deposited in the United States mail,
postage prepaid, certified or registered, return receipt requested, or (c) one
(1) business day after such item is deposited with Federal Express or other
generally recognized overnight courier, shipping charges prepaid, addressed to
the appropriate party hereto at its address set out below, or at such other
address as it shall have theretofore specified by written notice delivered in
accordance herewith:
To RSI:
RoomSystems International Corporation
3770 Howard Hughes Parkway
Hughes Center Suite 175
Las Vegas, NV 89109
Attention: General Counsel
With a copy to:
RSI
390 North 3050 East
St. George, UT 84790
Attention: Mr. Steven L. Sunyich, CEO
To INNCO:
INNCO Corporation
755 Crossover Lane
Memphis, TN 38117
Attention: Mr. Stephen D. Pletcher, President
With a copy to:
Doubletree Hotels Corporation
755 Crossover Lane
Memphis, TN 38117
Attention: General Counsel
13. INDEPENDENT CONTRACTOR
The parties hereto will be independent contractors under this
Agreement. It is not the intent of the parties to form a partnership, and it is
understood that each party will exercise full
<PAGE>
power and authority, except as specifically provided otherwise in this
Agreement, to select the means, method and manner of performing all obligations
to be performed under this Agreement. Neither party shall have the authority to
bind or otherwise obligate the other party in any manner nor shall they
represent to anyone that it has the right to do so. RSI specifically
acknowledges and agrees that INNCO does not have the right to bind the
Participating Properties to this Agreement, as agent or otherwise.
14. SURVIVAL
The provisions of Paragraph 9 hereof, and any other provision hereof
which imposes upon the parties an obligation after termination of this
Agreement, shall survive such termination.
15. WAIVER, MODIFICATION OR AMENDMENT
Neither this Agreement nor any of its provisions (including the price
of the Product) may be waived, modified or amended except by an instrument in
writing signed by the parties hereto. Without limiting the foregoing, any change
in the Specifications and any adjustment in the price for such Product to be
made in accordance with Exhibit 3 must be agreed to by a written amendment to
this Agreement signed by both parties.
16. ENTIRE AGREEMENT
This Agreement and the Exhibits attached hereto constitute the
entire agreement of the parties hereto with respect to its subject matter and
supersede any and all prior negotiations, understandings, and/or agreements,
whether oral or written. No modification, change or alteration shall be
effective unless in writing and executed by both parties.
17. ASSIGNMENT
Each party hereto agrees that it will not assign, transfer or pledge
its interest in this Agreement, in whole or in part, or delegate performance
thereof, in whole or in part, without the prior written consent of the other
party, which consent shall not be unreasonably withheld, except that such
consent shall not be required for: (a) assignment of this Agreement to a
subsidiary, affiliate or parent of a party, (b) for any assignment by a
Participating Property to a successor owner of such Property, or (c) in
connection with any financing arrangement entered into by INNCO or any
Participating Property. Either party shall have the right, but not the
obligation, to terminate this Agreement in the event of a material change in the
ownership or control of the other party; "material" shall mean any transfer of
ten (10%) percent or more of the voting shares issued by a party or any entity
controlling such party. The preceding sentence shall not, however, apply to any
party or other entity which is a publicly traded company.
18. SUCCESSORS AND ASSIGNS
<PAGE>
Subject to Paragraph 17, this Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their successors and
assigns.
19. COMPLIANCE; NO WAIVER
The failure of either party to insist upon strict compliance with any
of the terms hereof shall not be considered to be a waiver of any such terms nor
shall it affect the right of such party to insist upon strict compliance
herewith at any time thereafter. The failure of either party to terminate this
Agreement upon the occurrence of a Material Breach by the other party in its
performance of any obligation hereunder shall not constitute a waiver or
otherwise affect the right to terminate this Agreement as a result of a
continuing or subsequent failure or refusal by the other party to comply with
any of such obligations. The rights and remedies set forth herein are in
addition to any other rights or remedies which may be granted by law.
20. SEVERABILITY
If any provision of this Agreement shall be contrary to law or
otherwise unenforceable, the illegality or unenforceability of any such
provision shall not affect the other terms, covenants, terms or conditions
hereof, and the remainder of this Agreement, or the application of such illegal
or unenforceable term or provision to persons or circumstances other than those
as to which this Agreement is held to be illegal or unenforceable, shall not be
affected thereby and each term and provision of this Agreement shall be valid
and enforced to fullest extent permitted by law.
21. DISPUTE RESOLUTION
21.1 Resolution. RSI, on the one hand, and the Participating
Properties and/or INNCO, on the other hand, will attempt to settle any claim or
controversy arising out of this Agreement through consultation and negotiation
in good faith and a spirit of mutual cooperation. If such attempts fail, then
the dispute will be mediated by a mutually acceptable mediator to be chosen by
RSI, on the one hand, and the Participating Property or Properties in question
and/or INNCO, on the other hand, within forty-five (45) days after written
notice by a party demanding mediation. No party may unreasonably withhold its
consent to the selection of a mediator, and RSI, on the one hand, and INNCO
and/or the Participating Property or Properties, on the other hand, will share
the costs of the mediation equally. By mutual agreement, however, RSI, on the
one hand, and the Participating Property or Properties and/or INNCO, on the
other hand, may postpone mediation until the parties have completed some
specified but limited discovery about the dispute. The parties may also agree to
replace mediation with some other form of alternative dispute resolution, such
as neutral fact-finding or a minitrial.
21.2 Alternate Dispute Resolution. Any dispute which the parties
cannot resolve through negotiation, mediation or other form of alternate dispute
resolution ("ADR") within six (6) months of the date of the initial demand by
one of the parties may then be submitted to the courts within Arizona for
resolution. The use of any ADR procedures will not be construed under the
doctrines of laches, waiver or estoppel to affect adversely the rights of any
party to
<PAGE>
pursue its legal remedies. Nothing in this section will prevent a party from
resorting to judicial proceedings if (a) good faith efforts to resolve the
dispute under these procedures have been unsuccessful or (b) interim relief from
a court is necessary to prevent serious and irreparable injury to one party or
to others.
21.2 Attorneys' Fees. In the event of any judicial proceedings in
connection with or arising out of this Agreement between RSI, on the one hand,
and INNCO and/or any Participating Property or Properties, on the other hand,
the losing party shall reimburse the prevailing party for its reasonable
attorneys' fees and costs in connection with such judicial proceedings.
22. COMPLIANCE WITH LAW
Both parties shall comply with all applicable federal, state and local
laws and executive orders and regulations issued pursuant thereto, including
without limitation, all laws relating to equal employment opportunity.
23. APPLICABLE LAW
The parties hereby agree that the laws of the State of Arizona shall
govern the interpretation of this Agreement and all matters arising hereunder.
EXECUTED on the date first set forth above.
INNCO CORPORATION
By /s/ President
-----------------------------------------
(Name) (Title)
Hereunto Duly Authorized
ROOMSYSTEMS INTERNATIONAL CORPORATION
By /s/ Steven L. Sunyich CEO
-----------------------------------------
(Name) (Title)
Hereunto Duly Authorized
<PAGE>
Exhibit 10.05
AMENDED AND RESTATED PROGRAM AGREEMENT
This Amended and Restated Program Agreement (the "Agreement") is entered
into as of March 10, 1999, by and among RoomSystems, Inc. ("RSi"), a Nevada
corporation; RoomSystems Corporation, dba RoomSystems Finance ("RSF" and
together with RSi and all affiliates of RSi and RSF, the "RSi Parties"), a
Nevada corporation; Steve L. Sunyich, individually ("Sunyich"); and AMRESCO
Leasing Corporation ("ALC"), a Nevada corporation.
RECITALS:
1. The parties hereto are parties to that certain Program Agreement (the
"Original Agreement") dated as of March 9, 1998, as amended by an Amendment
dated as of August 14, 1998.
2. This Agreement is intended to embody the terms and provisions of the
agreement among the parties hereto for the formation and operation of the
Program (as defined below) and this Agreement amends and restates the Original
Agreement in its entirety. The delegation of responsibilities for, and the
allocation of the profits, losses, expenses, deductions and credits pertaining
to, and the distribution of cash and property from, the Program are provided for
herein. All references to RSi in this Agreement shall include all affiliated
entities unless the context makes clear that a particular affiliated entity is
intended (e.g., RSi SPE as the owner of Equipment and lessor under Business
Leases).
3. Each party acknowledges that he or it has received adequate
consideration for entering into this Agreement and performing his or its
obligations hereunder, and that he or it will be benefited by the terms set
forth herein.
AGREEMENT:
Based on the recitals set forth above and the promises contained herein,
the parties agree as follows:
I. Overview
The Program will engage in the: (1) purchase by a wholly-owned, bankruptcy
remote subsidiary of RSi separately created for the Program ("RSi SPE") from RSi
of (a) certain fully-automated refreshment centers that do not include attached
room safes (each such refreshment center a "Standard Unit Refreshment Center")
and all related network computer systems and other related equipment (such
systems and equipment the "Standard Unit Equipment") and (b) certain
fully-automated refreshment centers that include attached room safes (each such
combined refreshment center/safe a "Safe Unit
1
<PAGE>
Refreshment Center") and all related network computer systems and other related
equipment (such systems and equipment the "Safe Unit Equipment"); (2) receipt by
RSi SPE of a nonrevocable license for a term which will end no earlier than the
end of the term of the last Business Lease (as defined below) originated under
this Agreement ("License") to use all intellectual property of RSi or RSi SPE
(or any of their affiliates) necessary to install and operate the Equipment (as
defined below) (such intellectual property the "Equipment Intellectual
Property"); (3) origination by RSi SPE of all leases (or revenue sharing
agreements) of the Equipment and Refreshment Centers to hotels and timeshares
located in the United States which provide for a sharing of revenues between RSi
and such hotels and timeshares (each lease or revenue sharing agreement, a
"Business Lease"), (4) short-term loan of funds by ALC to RSi SPE (as to each
loan, a "Lease Financing Loan"), secured by the following collateral: Business
Lease related to each Lease Financing Loan; all amounts held by the Custodian
(as defined in Paragraph III.A.6. below) pursuant to the lockbox arrangement
described in Paragraph III.A.6. herein; and the stock of RSi (such financing,
the "Business Lease Financing" and such collateral, the "Pledged Assets") and
(5) disposition of pools of Business Leases or Lease Financing Loans through
securitization or any other forms of transfer of such assets from ALC's balance
sheet (hereinafter collectively referred to as "Securitization"), in such format
and manner as determined by ALC in its sole discretion, but subject to the terms
and conditions of this Agreement ("Sole Discretion"). Each Standard Unit
Refreshment Center and each Safe Unit Refreshment Center shall be defined herein
as a "Refreshment Center" and all Standard Unit Equipment and all Safe Unit
Equipment shall be defined collectively as the "Equipment." RSi SPE will retain
ownership of the Equipment. RSi and RSi SPE will provide certain marketing,
lease origination, closing and servicing services, as more fully explained
herein.
Prior to each Securitization, ALC will fund each Business Lease Financing by
making Lease Financing Loans to RSi SPE with respect to each Transaction (as
defined in Paragraph III.A.3. below), subject to the terms and provisions of
this Agreement, including the specific requirements set forth on the attached
Exhibit A or as modified in writing by ALC and RSi (the "Guidelines") and a
Master Business Lease Financing Agreement between ALC and RSi SPE (the
"Financing Agreement"). For each Transaction approved by ALC through a
Transaction Approval (as defined in Paragraph III.A.3. below), (i) RSi SPE
will purchase the related Equipment from RSi before execution of the Business
Lease, obtain a License to use the Equipment Intellectual Property, and enter
into the Business Lease and (ii) the amount of the Lease Financing Loan will
be equal to the Loan Amount for the Business Lease (as defined in Paragraph
III.A.4. below). ALC will effect each Securitization with Business Leases or
Lease Financing Loans, the timing, format and substance of such to be
determined by ALC in its sole discretion. If ALC determines, in its
reasonable discretion, that a Transaction does not satisfy the requirements
of the Program as set forth more specifically in this Agreement and the
Financing Agreement, RSi SPE, upon obtaining written notice that ALC will not
provide Transaction Approval (as defined below), will cause RSi SPE to effect
a sale of the related Equipment and Business Lease to RSF prior to the
related Securitization.
2
<PAGE>
II. Conditions Precedent
ALC shall not be obligated to provide any Lease Financing Loans under this
Agreement unless, prior to May 31, 1999, RSi has completed all of the following
conditions precedent (each a "Condition"):
1. RSi receives a capital contribution subsequent to the date of this
Agreement of at least $8 million of additional equity (or subordinated
debt which is acceptable to ALC in its Sole Discretion); and,
2. RSi becomes a wholly-owned subsidiary of RSF and owns all the operating
assets (including Licenses for all Equipment Intellectual Property)
necessary or related to its business as carried on at the time of the
execution of this Agreement.
Upon satisfaction of each of the Conditions, the parties will proceed to
complete such documents and other agreements (including, but not limited to, the
Financing Agreement, Licenses for all Equipment Intellectual Property, and
Servicing Agreement) as ALC, in its reasonable discretion consistent with the
terms and conditions of this Agreement (including the Guidelines) ("Reasonable
Discretion"), determines are necessary to carry out the terms and conditions of
this Agreement and which will allow for Securitization.
III. Operation of the Program:
A. ACTIVITIES AND RESPONSIBLE PARTIES:
1. Marketing Activity:
RSi SPE will use its best efforts to enter into a Business Lease with
those businesses which desire to purchase or lease Refreshment Centers
or Equipment.
2. Lease Origination:
RSi SPE will be responsible for negotiating each Business Lease, which
Lease must be acceptable to ALC in ALC's Reasonable Discretion and
approved in writing by ALC as part of the Transaction Approval (as
defined below). RSi SPE shall arrange, subject to the terms and
conditions of the Guidelines and the Financing Agreement, for the time,
place and method of closing the Business Lease; provided that prior to
the closing of such Business Lease, RSi shall have transferred the
related Equipment to RSi SPE, and RSi or RSF, as applicable, shall have
transferred or granted to RSi SPE a License to use the Equipment
Intellectual Property.
3
<PAGE>
ALC and RSi agree that: (a) for each proposed Lease Financing Loan, the
related Business Lease pledged as collateral for such loan and the
lessee to such lease shall be underwritten by ALC subject to the
related Transaction Approval, the terms and conditions of this
Agreement including the Guidelines and the Financing Agreement; (b) the
standard form of the Business Lease which RSi proposes to use must be
acceptable to ALC in ALC's Reasonable Discretion; and (c) any proposed
changes to such standard form with respect to a specific Transaction
related to a Lease Financing Loan must be acceptable to ALC in ALC's
Reasonable Discretion and approved in writing by ALC.
3. Transaction Approval:
At the end of the Seasoning Period (as defined below) for each Business
Lease (being herein referred to as a "Transaction"), or sooner for all
Lease Financing Loans subject to ALC's Advance Funding Transaction
Approval Obligation (as defined below), RSi SPE will present to ALC for
its review a Transaction Submission Package relating to the Business
Lease which will include the information required in the Guidelines and
the Financing Agreement. Within seven (7) business days after the
submission of a Transaction Submission Package, ALC will determine, in
its Reasonable Discretion, whether the Transaction satisfies the
requirements for a Lease Financing Loan. Approval of issuance of a
Lease Financing Loan shall be memorialized in writing by ALC, in a form
set forth in the Financing Agreement, and executed by RSi SPE
("Transaction Approval"). For purposes of this Agreement, the
"Seasoning Period" shall be that period beginning on [***].
4. Lease Financing Loans:
ALC shall be required to fund a Lease Financing Loan or an Advance
Funded Lease Financing Loan to RSi SPE with respect to a Transaction
only upon satisfaction of all terms and conditions required under this
Agreement (including, but not limited to the Conditions and the
Guidelines), the Financing Agreement, and the Transaction Approval, as
determined by ALC in its Reasonable Discretion. Each Lease Financing
Loan and Advance Funded Lease Financing shall be subject to the terms
and conditions of the Financing Agreement.
The amount of each Lease Financing Loan shall equal the sum of the
Refreshment Center Loan Amount for all Refreshment Centers included in
*** Reflects portions of this document that have been omitted and filed
separately with the Commission.
4
<PAGE>
the applicable Business Lease securing the Lease Financing Loan (the
"Loan Amount"). The "Refreshment Center Loan Amount" for each (A)
Standard Unit Refreshment Center shall be equal to [***].
At each closing of a Lease Financing Loan, RSi and RSi SPE shall
provide standard representations and warranties (which shall not
include the representation set forth in Paragraph V.K.13. below)
regarding RSi and RSi SPE, the Transaction Submission Package, and the
related Business Lease to ALC, as set forth in the Financing Agreement
and other representations and warranties as ALC may reasonably request.
At the time of the Securitization, if required by ALC, RSi shall
provide the same and/or reasonable additional representations and
warranties which are identical to the representations and warranties
ALC delivers in connection with the Securitization.
5. Advance Funding Obligation:
Notwithstanding Section III.A.3. above (which provides that ALC need
not make a decision regarding Transaction Approval until after the
Seasoning Period for a Business Lease has expired), RSi SPE can request
advance funding for certain Lease Financing Loans prior to the
expiration of the Seasoning Period for the related Business Leases, and
ALC shall make its decision regarding Transaction Approval (such
obligation the "Advance Funding Transaction Approval Obligation") for
such Lease Financing Loans within seven (7) business days after ALC's
receipt of the related Transaction Submission Package, upon the
satisfaction of all terms and conditions of this Agreement, including
the following additional conditions: (a) RSi must have at least 10,000
installed Refreshment Centers which have completed the related
Seasoning Period and which have been funded by ALC through Lease
Financing Loans under the Program, (b) as of the date of the request
for such advance funding, the Business Leases (including Business
Leases then currently submitted for advance funding, but excluding all
other Business Leases that have not completed the related Seasoning
Period) related to all Lease Financing Loans funded or then currently
submitted for
*** Reflects portions of this document that have been omitted and filed
separately with the Commission.
5
<PAGE>
advance funding pursuant to [***]. Any Lease Financing Loan funded
by ALC in connection with the Advance Funding Transaction Approval
Obligation shall be defined herein as an "Advance Funded Lease
Financing Loan."
6. Pre-Securitization Period:
During the period of time between the funding of the Lease Financing
Loan for any Transaction under the Program and the related
Securitization of such Transaction (the "Pre-Securitization Period"),
ALC shall retain the Lease Financing Loan in accordance with the terms
and conditions of the Financing Agreement. A custodian designated by
ALC (the "Custodian") shall hold the Pledged Assets (excluding the
stock of RSI which ALC will hold) and collect directly from the lessee
to each Business Lease all revenues to which RSi SPE is entitled from
all of the Business Leases related to the Lease Financing Loans funded
during the Pre-Securitization Period through a lockbox arrangement or
as delivered to the Custodian by RSi SPE. On the 15th day of each
month, the Custodian will disburse or reserve such collected funds
(the "Collected Funds") in the following order and priority:
a. RSi (or any substitute servicer if RSi is no longer the servicer
pursuant to the terms of the Servicing Agreement [as defined
below]) shall be entitled [***].
b. [***]
*** Reflects portions of this document that have been omitted and filed
separately with the Commission.
6
<PAGE>
At the end of each calendar year, any amounts remaining
in the Property Tax Reserve, after payment of all applicable
property taxes for such year, will be released for and applied
to payments required under subparagraphs (c), (d) and (e) below.
c. [***]
d. A loss reserve account shall be established and held by the
Custodian for payment of any of the amounts due under
subparagraphs (a), (b) or (c) in the event that [***].
e. RSi SPE shall be entitled to [***].
The Custodian will provide an accounting to ALC, RSi and RSi SPE with
respect to each monthly remittance.
*** Reflects portions of this document that have been omitted and filed
separately with the Commission.
7
<PAGE>
In the event that, at any time during the Pre-Securitization Period, a
Business Lease is in payment default for a period of 60 days or more,
ALC shall have the right, but not the obligation, at any time
thereafter while such lease is in default, to accelerate the payment of
the then unamortized principal balance (plus any accrued but unpaid
interest) on the Lease Financing Loan related to the defaulted Business
Lease. RSi shall repay the Lease Financing Loan promptly in accordance
with the terms and conditions of the Financing Agreement.
7. Equipment Servicing:
a. For the term of each Business Lease related to the Lease
Financing Loans, in consideration of the Servicing Fee, RSi shall
service all of the Equipment and the Business Leases, in
accordance with the terms and conditions of an agreement (the
"Servicing Agreement") between ALC and RSi which shall include,
among other things provisions for revenue optimization of the
Equipment, and all necessary maintenance and other services,
including billing and collection and software troubleshooting and
upgrades and the provisions of subparagraphs 6.(b) and 6.(c)
below. To secure RSi's obligations under the Servicing Agreement
during and after the Pre-Securitization Period, RSi and RSF will
pledge to ALC or its assigns (or cause its affiliates to pledge)
the Equipment Intellectual Property and the stock of RSi.
b. [***] In the event, for any reason, a Business Lease is in
default for a period of 60 days, RSi shall promptly take all
action necessary (including legal action) to gain possession
of the related Equipment and promptly use its best efforts to
re-lease or sell the Equipment. The proceeds of any sale of
the Equipment, up to the amount necessary to fully fund the
Loss Reserve up to the Reserve Cap for all Lease Financing
Loans, shall be paid over to the Custodian to be held in the
Loss Reserve. Any new Business Lease with respect to the
Equipment shall be pledged as security for the applicable
Lease Financing Loan and all revenue received for such new
Business Lease shall be disbursed or reserved pursuant to
Paragraph III.A.6. Similar requirements shall apply with
respect to any Securitization.
*** Reflects portions of this document that have been omitted and filed
separately with the Commission.
8
<PAGE>
c. During the term of this Agreement and the Servicing Agreement,
RSi will comply with all installation, maintenance and licensing
agreements (or any similar agreements) related to any Equipment
or any Business Leases.
8. Securitization Services:
a. The Program will engage in the Securitization of Business Leases
or Lease Financing Loans. Until cumulative funding of $25 million
of Lease Financing Loans is attained, ALC, at its sole
discretion, may choose to engage in a Securitization. When $25
million or more of funding of Lease Financing Loans is attained,
ALC will use its best efforts to engage in a Securitization. The
parties anticipate that either (i) RSi SPE will transfer or
contribute the Business Leases to a trust which, in turn, will
issue securities to investors ("Investors"), ALC and RSi or (ii)
ALC will transfer or contribute the Lease Financing Loans to a
trust which, in turn, will issue securities to Investors and ALC,
but not RSi except to the extent specifically set forth herein.
RSi and RSi SPE agree to cooperate with ALC in effecting the
Securitization in such format as ALC reasonably determines will
maximize the economic interests of ALC (and RSi if RSi is to
receive any securities from such Securitization) resulting from
such Securitization as anticipated in this Agreement and RSi and
RSi SPE will execute all documents reasonably necessary to
effectuate such Securitization. ALC will manage the
Securitization process by providing such services as may be
required as determined in ALC's sole and absolute discretion,
including, but not limited to, the following:
(i) assistance in the generation of a private placement
memorandum or prospectus and prospectus supplement, if any;
(ii)assistance in placement of securities with investors;
(iii) settlement date accounting;
(iv) proceeds distribution;
(v) assistance in presenting Business Leases/Lease Financing
Loans and proposed structure of the Securitization to rating
agencies and monoline insurance providers and responding to
9
<PAGE>
rating agency/monoline insurance providers' inquiries; and
(vi) all other aspects of the closing of the Securitization
process.
b. Any third party, including, but not limited to investment bankers
and legal counsel, to be used in the Securitization process shall
be selected by ALC.
c. ALC intends to work with one or more third parties on
Securitization file preparation for all Business Leases/Lease
Financing Loans, to ensure consistent presentation of lease
related information to rating agencies and investors. RSi agrees
to cooperate with any and all reasonable information requests of
ALC and its third parties relating to the sale of the Business
Leases/Lease Financing Loans in connection with a Securitization.
d. ALC agrees that, without RSi's written consent, ALC will not take
any action in carrying out a Securitization which will result in
RSi's receiving less than the Residual Profits set forth in
Paragraph III.A.6.
B. COSTS AND EXPENSE OF LEASE FINANCING LOANS:
ALC and RSi shall each pay their own legal fees and related costs
associated with each Lease Financing Loan.
C. DISTRIBUTION OF PROGRAM REVENUES AND SECURITIZATION PROFITS:
1. Unless RSi and ALC shall agree otherwise, all net proceeds and
profits from each Securitization of Lease Financing Loans
contemplated by the Program shall be paid only to ALC, and RSi
shall have no right to receive any amounts from any such
Securitization of Lease Financing Loans except as set forth
specifically herein. In the event of Securitization of Lease
Financing Loans, the lockbox arrangement set forth in Paragraph
III.A.6. shall continue until all Lease Financing Loans are
repaid in full.
2. Unless RSi and ALC shall agree otherwise, all gross revenues from
Business Leases included in any Securitization of Business Leases
(the "Securitized Leases") contemplated by the Program shall be
10
<PAGE>
held by a Custodian pursuant to a lockbox arrangement and shall
be distributed each month in the following order and priority:
a. [***]
b. [***]
c. [***]
d. [***]
e. [***]
3. Unless RSi and ALC shall agree otherwise, in a Securitization of
Business Leases (a) all cash proceeds from the sale of securities
created by the Securitization less (i) all Securitization Costs
required to be paid by the Program and/or reimbursed to RSi and
ALC and (ii) an amount equal to the unpaid principal balance of
the Lease Financing Loans (including any accrued but unpaid
interest thereon) for the Securitized Leases, which shall be paid
to ALC ("Securitization Profits") shall be distributed to ALC;
(b) RSi SPE shall receive securities which represent its right to
receive Residual Profits; and (c) ALC shall receive any other
securities not sold in such Securitization. ALC shall compute in
good faith Securitization Profits, which computations shall be
dispositive, absent manifest error.
4. ALC shall be entitled to reimbursement of all amounts payable as
"Securitization Costs" (defined as out-of-pocket expenses ALC
incurs in connection with services ALC shall be required to
perform pursuant to the Program described in this Agreement, in
the nature of but not limited to, printing costs, legal fees
(other than those of RSi SPE, which RSi SPE shall pay from its
own funds), rating agency fees, accounting fees, third party
underwriting and brokerage fees and preparation of rating agency
and investor books or packages, loan premiums, review counsel
fees, and other similar direct out-of-pocket costs, to the extent
ALC has advanced funds for the payment of such expenses). If
*** Reflects portions of this document that have been omitted and filed
separately with the Commission.
11
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RSi should voluntarily advance funds for any of such
Securitization Costs, RSi shall likewise be entitled to
reimbursement therefore, provided that such funding be advanced
by RSi only with the prior written consent of ALC.
5. The amounts payable to ALC and RSi under subparagraph (4) above,
shall be reimbursed to ALC or RSi, as applicable, out of
Securitization Profits upon completion of each respective
Securitization.
6. Upon payment in full of all amounts owed to ALC and the Investors
pursuant to Paragraph III.C.2.c. in the event of a Securitization
of Business Leases or Paragraph III.A.6. in the event of a
Securitization of Lease Financing Loans, all funds remaining (if
any) in the applicable Loss Reserve shall be distributed to RSi
SPE.
12
<PAGE>
D. TERM OF THIS AGREEMENT:
1. The term of this Agreement shall continue from the effective date
of this Agreement until seven years following the date on which
the first Lease Financing Loan is funded, or until terminated (a)
by ALC, in its sole discretion, upon a failure by RSi SPE to
satisfy the production requirements of Paragraph III.F. below or
(b) by either party, in its sole discretion, upon a breach by the
other party of its obligations hereunder or under any other
agreement executed pursuant hereto.
2. Upon termination of this Agreement, (i) ALC shall have no further
obligation to provide Business Lease Financing, (ii) ALC's
exclusive right to provide Business Lease Financing under this
Agreement shall terminate, and (iii) in the event that RSi is in
breach of its obligations with respect to any Securitization as
set forth in this Agreement, all Lease Financing Loans which have
not been included in a Securitization shall become immediately
payable in full.
E. NON-ASSIGNABILITY:
RSi may not assign, sell, exchange, hypothecate or otherwise transfer
its rights, duties, obligations, privileges, entitlements or other
interest in this Agreement, the Residual Profits or any securities
issued to RSi from a Securitization to any other party without the
express written consent of ALC.
F. LEASE PRODUCTION/INTEREST RATE ADJUSTMENT:
RSi SPE shall originate Business Leases which result in at least $25
million in Lease Financing Loans in the period ending thirty-six months
from the date of this Agreement and at least $10 million in Lease
Financing Loans in each twelve month period beginning 12 months after
the date of this Agreement. Should RSi fail to meet this production
requirement at any time during the term of this Agreement, the Interest
Rate on all Lease Financing Loans held by ALC (i.e., not previously
included in a Securitization) shall be [***].
G. KEY PERSONNEL:
*** Reflects portions of this document that have been omitted and filed
separately with the Commission.
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Steven L. Sunyich will grant licenses to use any Equipment Intellectual
Property owned by Mr. Sunyich and that relates to RSi, RSi SPE or the
Equipment.
H. EXCLUSIVITY:
During the term of this Agreement, (i) the RSi Parties hereby agree
that, with respect to each Business Lease to a hotel or timeshare
property located in the United States: (a) the RSi Parties shall
request Business Lease Financing from ALC, and (b) ALC shall have the
exclusive right to provide Business Lease Financing to the RSi Parties
pursuant to the terms and conditions of this Agreement; and (ii) upon
the satisfaction of each Condition, ALC agrees to provide Business
Lease Financing for each Transaction which satisfies the requirements
of this Agreement, the Guidelines and the Financing Agreement. In the
event that the Conditions or Guidelines are not satisfied at any time
during the term of this Agreement, ALC shall continue to have its
exclusive right to provide Business Lease Financing pursuant to the
terms and conditions of this Agreement, but shall not have the
obligation to provide Business Lease Financing. In the event that ALC
declines to exercise its right to provide Business Lease Financing for
any Business Lease, the RSi Parties may sell or finance, as the case
may be, such Business Lease to or with, as the case may be, a third
party.
I. RIGHT OF FIRST REFUSAL:
During the term of this Agreement ALC shall have an exclusive right of
first refusal ("Right of First Refusal") to provide financing, on a
program basis, for all Refreshment Centers, Equipment or any other
goods or equipment provided by any of the RSi Parties to all Customers
in all industries (other than hotel or timeshare industries which are
covered by the exclusivity provisions of Section III.H. above) pursuant
to a lease (or revenue sharing agreement) that provides for the sharing
of revenues between any of the RSi Parties and such Customer. If ALC
does not exercise its Right of First Refusal on a program basis in a
new industry within ninety (90) days from the date that ALC receives a
written notice from RSi requesting ALC to consider a financing program
in such industry, ALC shall not have a right of first refusal to
provide financing to the RSi Parties for Refreshment Centers, Equipment
or any other goods or equipment provided by any of the RSi Parties to
Customers in such industry. If ALC exercises its Right of First
Refusal, RSi and ALC shall document such financing program in a program
agreement specific to such industry.
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<PAGE>
J. COVENANTS RELATING TO REFRESHMENT CENTERS AND BUSINESS LEASES:
During the term of this Agreement, the RSi Parties shall market
Refreshment Centers to Customers in the hotel industry through Business
Leases. Notwithstanding the foregoing, the RSi parties shall be allowed
to market Refreshment Centers to Customers through Equipment Purchase
(as defined below) or Standard Lease (as defined below) transactions.
IV. Traditional Equipment Financing:
A. General Description of Traditional Equipment Financing:
For the RSi Parties' customers or potential customers ("Customers") that
desire to have Refreshment Centers or Equipment installed on their
premises, but do not desire to enter into a Business Lease which provides
for the sharing of revenue between RSi and a Customer, such Customers must
either purchase the Equipment or Refreshment Centers from RSi (each such
purchase an "Equipment Purchase") or lease such Equipment or Refreshment
Centers from RSi or some other third party (any such lease which does not
provide for a sharing of revenues between RSi and such Customer shall be
referred to herein as a "Standard Lease"). Any financing requested or
obtained by a Customer to facilitate an Equipment Purchase, or any Standard
Lease requested or obtained by a Customer, shall be defined herein as
"Traditional Equipment Financing."
B. Exclusive Financing Source for Traditional Equipment Financing:
As part of the consideration for ALC's obligations under this Agreement,
the RSi Parties shall refer all Customers to ALC and shall recommend ALC as
the exclusive source of Traditional Equipment Financing to each of their
Customers (such recommendation obligation the "Recommendation
Requirement"). The RSi Parties shall not recommend to any of their
Customers any other company or person to provide Traditional Equipment
Financing unless: (a) ALC fails to provide such Customer with a written
approval for financing (the "Commitment Letter") within three (3) business
days following ALC's receipt of the Full Submission Package (as hereinafter
defined), or (b) the business installing the Equipment has less than three
(3) months operating history and the Customer will not provide ALC with a
guarantee of the Traditional Equipment Financing from a Guarantor (as
hereinafter defined). The Recommendation Requirement extends to all of the
RSi's Parties' Customers in the United States, including but not limited to
Customers in the hotel, hospital and timeshare industries.
Notwithstanding the foregoing paragraph, Customers shall be allowed to
unilaterally and independently select parties other than ALC to provide
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<PAGE>
Traditional Equipment Financing.
The "Full Submission Package" shall include the following specified items
for the Customer which is obtaining the Traditional Equipment Financing and
for any other person or entity which intends to guarantee the Traditional
Equipment Financing ("Guarantor"):
1. Completed lease application of the Customer including complete
explanation of terms of current debt (the "Consolidated Debt Schedule
worksheet");
2. Current personal financial statement (no more than three months old)
for all equity holders that own more than 20% of the equity of the
Customer or Guarantor ("Controlling Owners").
3. Signed personal tax returns for all Controlling Owners for the
previous two years only if the related Customer does not otherwise
independently satisfy ALC's then current credit requirements;
4. Balance sheet and income statement of the Customer and Guarantor for
the previous two years (fiscal or calendar years whichever is
applicable);
5. Interim Income Statement of the Customer and Guarantor for the current
and trailing year to date periods ;
6. Signed tax returns of the Customer and Guarantor for the previous two
years (fiscal or calendar years whichever is applicable);
7. Twelve month pro-forma for any property location which is less than
six months old including a feasibility study.
RSi shall provide ALC with written notice that a Customer intends to
utilize or is considering utilizing Traditional Equipment Financing within
five (5) business days from the date RSi first becomes aware that such
Customer intends to utilize or is considering utilizing Traditional
Equipment Financing. RSi authorizes ALC to contact all Customers referenced
in any of the foregoing notices and to inform such Customers that ALC is
RSi's exclusive source of Traditional Equipment Financing.
The Recommendation Requirement shall automatically terminate upon the
earlier to occur of: (1) the date upon which Donnelly L. Prehn's full-time
employment with ALC is terminated for any reason and (2) the date upon
which this Agreement is terminated as set forth herein.
In the event that ALC does not approve a Customer for Traditional Equipment
Financing, upon the request of RSi, ALC shall provide a copy of its entire
credit file (including any and all written underwriting analysis) to RSi,
and ALC hereby authorizes RSi to use all information included in such
credit file to attempt to locate other persons or entities to provide
Traditional Equipment Financing to such Customer.
16
<PAGE>
C. Repurchase Obligation for Traditional Equipment Financing:
In the event that any Customer elects Traditional Equipment Financing from
ALC, and such Customer defaults on its lease or other agreement with ALC
(such Customer a "Defaulted Customer"), and ALC obtains the legal right to
recover and take possession of any Refreshment Centers subject to any such
lease or other agreement, RSi shall:
1. Within two weeks of ALC's request, initiate action to, and within
eight (8) weeks of such initiation, shall remove such Refreshment
Centers from the Customer's premises at RSi's own cost and expense
(subject to reimbursement as set forth below) and shall hold such
Refreshment Centers as a consignee of ALC; and
2. Use its best efforts to either: (a) purchase each such (i) Standard
Unit Refreshment Center from ALC for [***] (b) re-market and
re-sell each such Refreshment Center at the fair market value for
such equipment (such best efforts remarketing and re-sale
obligation the "Remarketing Obligation"). If RSi resells such
Refreshment Centers, RSi shall pay ALC all amounts received from
such sale or sales, less all of RSi's reasonable expenses incurred
in removing, remarketing and reinstalling such Refreshment Centers.
In the event that RSi satisfies its Remarketing Obligation by placing the
related Refreshment Centers at a Customer's premises pursuant to a Revenue
Sharing Agreement: (a) RSi shall pay ALC all amounts received by RSi under
such Revenue Sharing Agreement during the term of such agreement within
three (3) days of receipt of such amounts, until ALC receives all amounts
which it would have received from the Defaulted Customer under the
Traditional Equipment Financing if such Defaulted Customer had paid all
amounts required to be paid pursuant to the lease or other agreement,
provided, however, that RSi shall be entitled to offset from any payments
to ALC required by this paragraph, (i) RSi's reasonable expenses incurred
in removing, remarketing and reinstalling such Refreshment Centers (until
paid in full), (ii) an amount equal to the Property Tax Reserve for such
Refreshment Centers, and (iii) the related Servicing Fee for such
Refreshment Centers, and (b) such Revenue Sharing Agreement shall not be
subject to ALC's exclusive right to provide Hotel Lease Financing set forth
in Section III.H above.
D. Interest Rate Volume Credit for Traditional Equipment Financing:
*** Reflects portions of this document that have been omitted and filed
separately with the Commission.
17
<PAGE>
As consideration for the Recommendation Requirement, ALC shall credit
twenty-five percent (25%) of the amount financed by ALC through Traditional
Equipment Financing (calculated based upon the cost of the Equipment
financed) against the cumulative volume amounts set forth in the interest
rate schedule included in Exhibit B to the Program Agreement.
E. RSi Commissions for Traditional Equipment Financing:
For each Traditional Lease Financing transaction entered into between ALC
and a Customer, ALC shall pay RSi a referral fee commission of fifty
one-hundredths percent (.50%) of the principal amount financed by ALC.
V. Additional Provisions
A. Further Assurances:
The parties shall execute such further agreements and take such action as
shall be necessary to facilitate and carry out the purposes and intent of
this Agreement. No person or entity not a party hereto shall have any
rights by reason of or be a third party beneficiary of this Agreement.
B. Choice of Law, Jurisdiction and Venue:
This Agreement shall be construed in accordance with the laws of the State
of Idaho, without regard to conflicts of law principles. The parties hereto
irrevocably (a) agree that any suit, action or other legal proceeding
arising out of or relating to this Agreement may be brought in a court of
record in the State of Idaho or in the courts of the United States of
America located in such state, (b) consent to the jurisdiction of each such
court in any such suit, action or proceeding, and (c) waive any objection
which it may have to the laying of venue of any such suit, action or
proceeding in any of such courts and any claim that any such suit, action
or proceeding has been brought in an inconvenient forum.
C. No Joint Venture:
This Agreement is not intended and shall not be construed as being a
partnership or joint venture for any purposes whatsoever.
D. Effective Date of the Agreement:
This Agreement shall be effective as of February 6, 1999.
E. Notices:
18
<PAGE>
All demands, notices and communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed, by registered or
certified mail, return receipt requested, or, if by other means, when
received by the other party at the address as follows:
(1) if to RSi:
RoomSystems, Inc.
390 North 3050E.
St. George, Utah 84790
Attention: Steven L. Sunyich
19
<PAGE>
(2) if to ALC:
AMRESCO Leasing Corporation
412 E. Parkcenter Boulevard
Suite 300
Boise, Idaho 83706
Attention: William C. Cole
with a copy to:
Arter & Hadden LLP
1801 K Street, NW
Suite 400K
Washington, DC 20006
Attention: Joe Gatti, Esq.
or such other address as may hereafter be furnished to the other party by
like notice. Any such demand, notice or communication hereunder shall be
deemed to have been received on the date delivered to or received at the
premises of the addressee (as evidenced, in the case of registered or
certified mail, by the date noted on the return receipt).
F. Parties Represented by Counsel:
Each party acknowledges that it has had the opportunity to consult with
legal counsel in the preparation and review of this Agreement. The
parties therefore stipulate that the rule of construction that
ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement to favor any party
against the other.
G. Indemnification:
1. The RSi Parties agree to defend, indemnify, pay and hold harmless
ALC and the officers, directors, counsel, agents and affiliates of
ALC (collectively, the "Indemnitees") from and against any and all
losses, liabilities, damages and claims, whether based on any
federal, state or foreign laws, statutes, rules and regulations,
on common law or equitable cause or on contract or otherwise, that
may be imposed on, incurred by or asserted against any such
Indemnitee, in any manner relating to, arising out of or resulting
from this Agreement, or the transactions contemplated hereby
(collectively, the "Indemnified Liabilities"); provided, however,
that none of the RSi Parties shall have any obligation to any
Indemnitee hereunder with respect to Indemnified Liabilities to
the extent such Indemnified Liabilities arise from the gross
negligence or willful misconduct of that Indemnitee as determined
by a final judgment of a court of competent jurisdiction. To the
extent that the undertaking to defend, indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, the RSi
Parties shall contribute the maximum that they are permitted to
pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by the
Indemnitee or any of them.
2. ALC agrees to defend, indemnify, pay and hold harmless the RSi
Parties and the officers, directors, counsel, agents and
affiliates of the RSi Parties (collectively, the "Indemnitees")
from and against any and all losses, liabilities, damages and
claims, whether based on any federal, state or foreign laws,
statutes, rules and regulations, on common law or equitable cause
or on contract or otherwise, that may be imposed on, incurred by
or asserted against any such Indemnitee, in any manner relating
to, arising out of or resulting from ALC's disclosure of
information, or representations, regarding the Equipment or
Refreshment Centers to third parties (collectively, the
"Indemnified Liabilities"); provided, however, that ALC shall have
no obligation to any Indemnitee hereunder with respect to
Indemnified Liabilities to the extent such
20
<PAGE>
Indemnified Liabilities arise from the gross negligence or willful
misconduct of that Indemnitee as determined by a final judgment of a
court of competent jurisdiction. To the extent that the undertaking to
defend, indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or
public policy, ALC shall contribute the maximum that it is permitted to
pay and satisfy under applicable law to the payment and satisfaction of
all Indemnified Liabilities incurred by the Indemnitee or any of them.
H. Waiver of Jury Trial and Consequential and Punitive Damages:
THE PARTIES, INCLUDING ANY ASSIGNEES, HEREBY WAIVE (A) THEIR RIGHT TO
TRIAL BY JURY OF DISPUTES, CLAIMS OR CONTROVERSIES BETWEEN THEMSELVES
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY AGREEMENTS,
INSTRUMENTS OR TRANSACTIONS RELATING TO THIS AGREEMENT, WHETHER ARISING
IN CONTRACT, TORT OR OTHERWISE; AND (B) THEIR RIGHT TO ANY CONSEQUENTIAL
OR PUNITIVE DAMAGES.
I. Confidentiality:
21
<PAGE>
The parties, without the prior written consent of the other party, will
not disclose or use, and will direct their agents and representatives not
to disclose or use any Confidential Information (as defined below) at any
time or in any manner other than in connection with the parties'
participation in the Program. For purposes of this Paragraph,
"Confidential Information" means all information which has or will be
disclosed by any party to this Agreement in connection with the Program
and all terms contained in this Agreement, provided that Confidential
Information shall not include information which is publicly available,
was acquired by any party to this Agreement from third parties or is
required to be disclosed by law. Notwithstanding the foregoing, (i) ALC
shall be allowed to disclose Confidential Information to statistical
rating agencies, monoline insurers, investment bankers and other parties
involved in a Securitization or the providing of financing to ALC and
(ii) RSi shall be allowed to disclose the general existence of the
Program, ALC's agreement to provide Business Lease Financing and RSi's
relationship with ALC, but RSi shall have no authorization, without ALC's
express written consent, to disclose the structure or financial terms of
the Program or any Business Lease Financing. Upon the written request of
any party to this Agreement ("Requesting Party"), the party to whom such
request is directed ("Recipient Party") will promptly return to the
Requesting Party all originals and all copies of Confidential
Information, and the Recipient Party will promptly destroy all written
information prepared by such Recipient Party or any of its agents or
representatives which contain or refer to Confidential Information.
J. Payment of Attorney's Fees:
If it is determined in a judicial proceeding that a party to this
Agreement has failed to perform under any provision of this Agreement,
and if the other party shall employ attorneys or incur other expenses for
the enforcement, performance or observance of the terms of this Agreement
on the part of the nonperforming party, then such other party, shall be
reimbursed by the nonperforming party, on demand, for reasonable
attorneys' fees and other out-of-pocket expenses.
K. Warranties, Representations and Covenants of RSi and RSF:
1. Each of RSi and RSF is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation with full power and authority to own its
properties and conduct its business as such properties are
presently owned and such business is presently conducted.
2. Each of RSi and RSF is duly qualified to do business as a foreign
corporation in good standing, and has obtained all necessary
licenses and approvals in all jurisdictions in which the ownership
or leasing of its properties or the conduct of its business
requires such qualifications,
22
<PAGE>
except where the failure to be so qualified or to have obtained
such licenses or approvals would not have a material adverse
effect on the transactions contemplated by this Agreement.
3. The execution and delivery of this Agreement by each of RSi and
RSF in the manner contemplated herein and the performance and
compliance with the terms hereof by it (i) shall not violate: (I)
its articles of incorporation or bylaws, or (II) any laws that
could have any material adverse effect whatsoever upon the
validity, performance or enforceability of any of the terms of
this Agreement applicable to RSi or RSF, and (ii) will not
constitute a material default (or an event that, with notice or
lapse of time or both, would constitute a material default) under,
or result in the breach of, any material contract, agreement or
other instrument to which RSi or RSF is a party or that may be
applicable to it or any of its assets.
4. The execution and delivery of this Agreement by each of RSi and
RSF in the manner contemplated herein and the performance and
compliance with the terms hereof by it do not require the consent
or approval of any governmental authority, or if such consent or
approval is required, it has been obtained.
5. Assuming due authorization, execution and delivery by each other
party hereto, this Agreement and all of the obligations of each of
RSi and RSF hereunder are the legal, valid and binding obligations
of RSi and RSF, as the case may be, and are enforceable in
accordance with the terms of this Agreement, except as such
enforcement may be limited by applicable debtor relief laws.
6. Each of RSi and RSF has the full power and authority to enter into
and consummate all transactions contemplated by this Agreement,
has duly authorized the execution, delivery and performance of
this Agreement, and has duly executed and delivered this
Agreement, and has taken all requisite corporate action to make
this Agreement valid, binding and enforceable upon RSi and RSF in
accordance with its terms.
7. The execution and delivery of this Agreement by each of RSi and
RSF in the manner contemplated herein and the performance and
compliance with the terms hereof by it do not require the consent
or approval of any governmental authority, or if such consent or
approval is required, it has been obtained.
8. Each of RSi's and RSF's execution and delivery of this Agreement
and all other related documents, their performance and compliance
with the terms hereof and thereof will not constitute a violation
of, any law, any order or
23
<PAGE>
decree of any court, or any order, regulation or demand of any
federal, state or local governmental or regulatory authority.
9. No action, suit or other proceeding or investigation is pending
or, to the best of RSi's and RSF's knowledge, threatened before
any court or any federal, state or local governmental or
regulatory authority (A) asserting the invalidity of this
Agreement, (B) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement, or (C) seeking any
determination or ruling that would materially and adversely affect
the ability of RSi or RSF to perform its obligations under this
Agreement.
10. No consent, approval, authorization or order of, registration or
filing with or notice to, any court or any federal, state or local
governmental or regulatory authority is required for the
execution, delivery and performance by RSi or RSF of this
Agreement (other than those that have been obtained or will be
obtained prior to the effective date of this Agreement and other
than any such actions, approvals, etc., under any state securities
laws or "Blue Sky" statutes, as to which neither RSi nor RSF makes
such representation or warranty).
11. Neither RSi nor RSF is infringing upon, or otherwise violating the
rights of any third party with respect to any patent, copyright,
trademark, service mark, trade name or other mark, license,
invention, or design, registered or unregistered (collectively,
"Intellectual Property"). The use of any computer software
programs, source codes, hardware schematics and working drawings,
operating manuals, procedural documentation, performance data,
customer lists, guidelines, applications, files, records,
memoranda, reports, information (including sales, business,
financial, accounting, forecasts, projections, media and other
information) or other similar items (collectively, "General
Intangibles") by RSi and RSF in connection with their respective
businesses and operations or the transactions contemplated under
this Agreement does not, and will not, violate or otherwise
infringe the rights of any third party. RSi and RSF own and
possess all Intellectual Property and General Intangibles
necessary for the conduct of their businesses and operations,
including, without limitation, the development, manufacture, sale,
maintenance and operation of the Equipment and neither RSi nor RSF
is aware of any claim to the contrary or challenge by any person
to the rights of RSi and RSF with respect to such Intellectual
Property and General Intangibles, except as otherwise disclosed in
writing to ALC.
12. RSi and RSF will pay all taxes, assessments and other governmental
impositions related to their properties, businesses and operations
other than property taxes on the Equipment.
24
<PAGE>
13. As of the date of this Agreement, the average revenue per day of
all of RSi installed Refreshment Centers (excluding revenue
generated from room safes) in [***].
14. Without the written consent of ALC, RSi and RSF will not, nor will
either of them permit any of their subsidiaries or affiliates to:
(a) enter into any transaction of merger or consolidation or
amalgamation, unless the person or entity resulting from such
merger or consolidation (if not RSi or RSF) shall expressly
assume, by supplemental agreement satisfactory in form to ALC and
executed and delivered to ALC, the due and punctual performance
and observance of each and every covenant and condition of this
Agreement to be performed and observed by the RSi Parties, (b)
liquidate, wind-up or dissolve itself (or suffer any liquidation
or dissolution), or (c) convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or
a substantial part of its assets, whether now owned or hereafter
acquired (including without limitation) receivables, but excluding
any inventory or other assets sold or disposed of in the ordinary
course of business). RSi and RSF shall not be in breach of the
covenant reflected in item (c) in the preceding sentence unless
ALC provides RSi with notice of the violation of such covenant
within ninety (90) days from the date that ALC receives financial
statements from RSi that make such violation reasonably and
clearly apparent.
L. Warranties and Representations of ALC:
1. ALC is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation
with full power and authority to own its properties and conduct
its business as such properties are presently owned and such
business is presently conducted.
2. ALC is duly qualified to do business as a foreign corporation in
good standing, and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or leasing
of its properties or the conduct of its business requires such
qualifications, except where the failure to be so qualified or to
have obtained such licenses or approvals would not have a material
adverse effect on the transactions contemplated by this Agreement.
3. The execution and delivery of this Agreement by ALC in the manner
contemplated herein and the performance and compliance with the
terms hereof by it (i) shall not violate: (I) its articles of
incorporation or bylaws, or (II) any laws that could have any
material adverse effect whatsoever
*** Reflects portions of this document that have been omitted and filed
separately with the Commission.
25
<PAGE>
upon the validity, performance or enforceability of any of the
terms of this Agreement applicable to ALC, and (ii) will not
constitute a material default (or an event that, with notice or
lapse of time or both, would constitute a material default) under,
or result in the breach of, any material contract, agreement or
other instrument to which ALC is a party or that may be applicable
to it or any of its assets.
4. The execution and delivery of this Agreement by ALC in the manner
contemplated herein and the performance and compliance with the
terms hereof by it do not require the consent or approval of any
governmental authority, or if such consent or approval is
required, it has been obtained.
5. Assuming due authorization, execution and delivery by each other
party hereto, this Agreement and all of the obligations of ALC
hereunder are the legal, valid and binding obligations of ALC,
enforceable in accordance with the terms of this Agreement, except
as such enforcement may be limited by applicable debtor relief
laws.
6. ALC has the full power and authority to enter into and consummate
all transactions contemplated by this Agreement, has duly
authorized the execution, delivery and performance of this
Agreement, and has duly executed and delivered this Agreement, and
has taken all requisite corporate action to make this Agreement
valid, binding and enforceable upon ALC in accordance with its
terms.
7. The execution and delivery of this Agreement by ALC in the manner
contemplated herein and the performance and compliance with the
terms hereof by it do not require the consent or approval of any
governmental authority, or if such consent or approval is
required, it has been obtained.
8. ALC's execution and delivery of this Agreement and all other
related documents, its performance and compliance with the terms
hereof and thereof will not constitute a violation of, any law,
any order or decree of any court, or any order, regulation or
demand of any federal, state or local governmental or regulatory
authority.
9. No action, suit or other proceeding or investigation is pending
or, to the best of ALC's knowledge, threatened before any court or
any federal, state or local governmental or regulatory authority
(A) asserting the invalidity of this Agreement, (B) seeking to
prevent the consummation of any of the transactions contemplated
by this Agreement, or (C) seeking any determination or ruling that
would materially and adversely affect the ability of ALC to
perform its obligations under this Agreement.
26
<PAGE>
10. No consent, approval, authorization or order of, registration or
filing with or notice to, any court or any federal, state or local
governmental or regulatory authority is required for the
execution, delivery and performance by ALC of this Agreement
(other than those that have been obtained or will be obtained
prior to the effective date of this Agreement and other than any
such actions, approvals, etc., under any state securities laws or
"Blue Sky" statutes, as to which ALC makes no such representation
or warranty).
M. Counterparts
This Agreement may be executed in counterparts, so that when all parties
have signed this form of Agreement, such signatures taken together form
one complete agreement.
VII. Liquidated Damages
If any of the RSi Parties breach any obligations under Sections III.H., III.I.,
III.J. or V.K.14. (any obligation in any such section, a "Liquidated Damage
Obligation"), ALC shall be relieved of all of its obligations under this
Agreement, the RSi Parties shall pay ALC Liquidated Damages (defined below),
within sixty (60) days of RSi's receipt of notice of such breach if such breach
is not cured within such sixty (60) day period, and the outstanding amounts of
all Lease Financing Loans advanced by ALC under the Program shall be immediately
due and payable (such amount the "Accelerated Amount"). For purposes of this
Agreement, "Liquidated Damages" shall be equal to 50% of the present value of
the Projected Annual Spread Income calculated as of the date the first breach of
any Liquidated Damage Obligation occurs, utilizing a discount rate of 10% per
annum, and a term which begins in the year in which such breach occurs
(including such year), and which ends in the year 2005. The "Projected Annual
Spread Income" shall be equal to the projected units for each year shown below
multiplied by [***]:
YEAR PROJECTED UNITS
---- ---------------
[***]
The Liquidated Damages shall be reduced by sixty-six and two-thirds percent (66
2/3%) from the amounts set forth above if both Donnelly Prehn and William Cole
are not
*** Reflects portions of this document that have been omitted and filed
separately with the Commission.
27
<PAGE>
employed on a full-time basis by ALC (or AMRESCO Commercial Finance,
Inc. or AMRESCO, INC.) on the date the related breach of a Liquidated Damage
Obligation occurs, unless (1) both Derek Ellis and Steven L. Sunyich are not
employed by RSi on such date (unless RSi replaces either Messrs. Ellis or
Sunyich with a successor that holds a substantially similar position and that is
acceptable to ALC in its reasonable and good faith judgment), and/or (2) ALC
replaces either Donnelly Prehn or William Cole with a successor that holds a
substantially similar position and that is acceptable to RSi in its reasonable
and good faith judgment, in which event, the Liquidated Damages shall not be
reduced from the amounts set forth above. The RSi Parties and ALC expressly
acknowledge and agree that it would be extremely difficult to determine ALC's
actual damages as a result of any breach of a Liquidated Damage Obligation, and
that the Liquidated Damages are a fair and reasonable estimate of such actual
damages in light of the magnitude of the actual or anticipated harm that will be
caused to ALC by any such breach. The RSi Parties acknowledge and agree that
their obligation to pay Liquidated Damages are joint and several.
VIII. Pledge and Grant of Security Interest
As collateral security for the prompt and complete payment and performance when
due of each Liquidated Damage Obligation, and of the RSi Parties' obligation to
pay Liquidated Damages and the Accelerated Amount, the RSi Parties hereby pledge
and grant to ALC, a continuing security interest in, and lien on, all of the
RSi's Parties' right, title and interest in and to the following (collectively,
the "Collateral"): all Pledged Assets, Residual Profits, Collected Funds,
Refreshment Centers, Equipment, Intellectual Property, Equipment Intellectual
Property, Licenses, Business Leases, accounts, goods, inventory, documents,
chattel paper, deposit accounts, equipment, general intangibles, contracts,
certificates of title, fixtures, credits, claims, demands, assets and other
personal property of the RSi Parties, whether now owned, existing, hereafter
acquired, held, used, or sold, and any other property, rights and interests of
the RSi Parties which at any time relate to, arise out of or in connection with
the foregoing or which shall come into the possession or custody or under the
control of the Secured Party or any of its agents, representatives, associates
or correspondents, in connection with the foregoing; any and all additions and
accessions, replacements, substitutions, and improvements, of or to all of the
foregoing and all products, rents, profits, offspring, and proceeds thereof. For
purposes of the foregoing sentence, any term not otherwise defined herein shall
have the meaning ascribed to such term under the Uniform Commercial Code (or any
comparable law in effect in any relevant jurisdiction) the laws of which govern
the attachment or perfection of security interests hereunder. Without limiting
the generality of the foregoing, this Agreement also secures the payment of all
amounts which constitute part of the Liquidated Damage Obligations, the
Liquidated Damages, and the Accelerated Amount that would be owed by the RSi
Parties to ALC, but for the fact they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding involving
any of the RSi Parties.
28
<PAGE>
All rights of ALC and security interests hereunder, shall be absolute and
unconditional irrespective of: (a) any change in the time, manner, amount or
place of payment of, or any other term of, all or any of the Liquidated Damage
Obligations, the Liquidated Damages or the Accelerated Amount, or any other
amendment or waiver of or any consent to any departure from this Agreement; (b)
any exchange, release or non-perfection of all or any part of the Collateral or
any other collateral, or any release from, amendment to, waiver of, or consent
to departure from any or all of the Liquidated Damage Obligations, the
Liquidated Damages or the Accelerated Amount, or (c) to the fullest extent
permitted by law, any other circumstances which might otherwise constitute a
defense available to, or a discharge of the RSi Parties.
At the request of ALC, the RSi Parties shall execute all Financing Statements
and other documents and shall deliver items (including but not limited to stock
certificates) to ALC required to perfect ALC's security interests granted
pursuant to this Section VIII.
29
<PAGE>
This Agreement has been executed and delivered as of the date first above
written.
AMRESCO Leasing Corporation
By: /s/
------------------------------
Name: Donnelly L. Prehn
Title: Vice President
ROOMSYSTEMS, INC.
By: /s/
------------------------------
Name: Steven L. Sunyich
Title: CEO and Chairman of the Board
ROOMSYSTEMS CORPORATION
By: /s/
------------------------------
Name: Steven L. Sunyich
Title: CEO, Chairman of the Board
and President
/s/
- ------------------------------------------
Steven L. Sunyich, individually only as to
Paragraph III.G.
30
<PAGE>
Exhibit 10.06
FIRST AMENDMENT TO AMENDED & RESTATED
PROGRAM AGREEMENT
Reference is made to the Amended and Restated Program Agreement
(the "Program Agreement") entered into as of March 10, 1999, by and among
RoomSystems, Inc. ("RSi"), a Nevada corporation; RoomSystems Corporation, dba
RoomSystems Finance ("RSF" and together with RSi and all affiliates of RSi and
RSF, the "RSi Parties"), a Nevada corporation; Steve L. Sunyich, individually
("Sunyich"); and AMRESCO Leasing Corporation ("ALC"), a Nevada corporation. The
capitalized terms used in this First Amendment shall have the same definitions
as set forth in the Program Agreement to the extent that such capitalized terms
are defined therein and not redefined in this First Amendment.
WHEREAS, the parties to the Program Agreement desire to amend the
Program Agreement;
NOW, THEREFORE, the RSi Parties, Sunyich, and ALC hereby agree as
follows:
1. The first paragraph of Section II of the Program Agreement
is hereby amended to delete the language: ", prior to May
31, 1999,".
2. Section II.1 of the Program Agreement is hereby amended by
deleting the following:
"RSi receives a capital contribution subsequent to the date
of this Agreement of at least $8 million of additional
equity (or subordinated debt which is acceptable to ALC in
its Sole Discretion); and,"
and replacing it with:
"Subsequent to January 1, 1999, but on or prior to October
27, 1999, RSi must close its current private placement
equity offering, and must comply with the following minimum
equity requirements:
a. RSi must receive cash equity contributions of at least
$4,421,000;
b. RSi must convert at least $1,500,000 of RSi debt
(excluding any debt to RSG Investments, LLC ("RSG")) to
equity;
c. RSi must convert at least $800,000 of the RSG debt to
equity; and,"
3. Section 3 under the heading "GENERAL UNDERWRITING
GUIDELINES" of Exhibit A to the Program Agreement is hereby
amended to delete the reference "$1 million net worth" with
"$2 million net worth."
4. The following paragraph is added as a new Section 5 under
the heading "GENERAL UNDERWRITING GUIDELINES" of Exhibit A
to the Program Agreement:
1
<PAGE>
"During the term of this Agreement, RSi must maintain
working capital of at least $250,000 (determined on a
quarterly basis)."
5. The following paragraph is added as a new Section 6 under
the heading "GENERAL UNDERWRITING GUIDELINES" of Exhibit A
to the Program Agreement:
[***]
6. Section I of the Program Agreement is hereby amended to add
the following paragraph following the last paragraph of such
section:
"ALC shall not be obligated to fund any Lease Financing Loans
prior to January 1, 2000."
7. Section III.H of the Program Agreement is hereby amended to
replace the reference to "United States" with "United States
and/or Canada."
All other sections of, and cross-references in, the Program
Agreement shall be renumbered accordingly based upon the foregoing amendments.
This First Amendment sets forth the entire agreement between the
parties with respect to the matters set forth herein. Except as herein modified
or amended, the provisions, conditions and terms of the Program Agreement shall
remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed on this 24th day of September, 1999.
AMRESCO Leasing Corporation ROOMSYSTEMS, INC.
By: /s/ William C. Cole By: /s/ Steven L. Sunyich
------------------------------------ ----------------------------------
William C. Cole Steven L. Sunyich
Vice President CEO & Chairman of the Board
ROOMSYSTEMS CORPORATION, dba
ROOMSYSTEMS FINANCE
By: /s/ Steven L. Sunyich By: /s/ Steven L. Sunyich
------------------------------------ ----------------------------------
Steven L. Sunyich Steven L. Sunyich
CEO, Chairman of the Board Individually
and President
*** Reflects portions of this document that have been omited and filed
separately with the Commission
2
<PAGE>
Exhibit 10.07
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATIION AGREEMENT (this "Agreement") is entered into
effective as of August 17, 1999, by and between RoomSystems, Inc., a Nevada
corporation (the "Corporation"), and ALAN C. ASHTON ("Indemnitee"), based on the
following premises.
Premises
A. The articles of incorporation of the Corporation (the "Articles") and
the bylaws (the "Bylaws") provide for indemnification of the Corporation's
directors and officers in accordance with the Domestic and Foreign Corporation
laws of Nevada (the "Statute").
B. The Articles, Bylaws, and Statute contemplate that contracts and other
arrangements may be entered into with respect to indemnification of officers and
directors.
C. It is reasonable, prudent, and necessary for the Corporation to
obligate itself contractually to indemnify Indemnitee so that he will to serve
as a director of the Corporation and will be able to service the Corporation
free from undue concern that he will not be adequately protected.
D. Indemnitee is willing to serve the Corporation on condition that he is
indemnified on the terms and conditions of this Agreement.
E. The directors of the Corporation have duly approved this Agreement and
the indemnification provided herein with the express recognition that the
indemnification arrangements provided herein exceed that which the Corporation
would be required to provide pursuant to Section 78.751 of the Statute.
Agreement
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
1. Definitions. As used in this Agreement.
a. The term "Proceeding" shall include any threatened, pending, or
completed action, suit, or proceeding, whether brought by or in the right
of the Corporation or otherwise and whether of a civil, criminal,
administrative, or investigative nature, in which Indemnitee was, is, or
will be involved as a party, as a witness, or otherwise, by reason of the
fact that Indemnitee is or was a director, officer, agent, or advisor of
the Corporation, by reason of any action taken by him or of any inaction
on his part while acting as a director, officer, agent, or advisor of the
Corporation, or by reason of the fact that he is or was serving at the
request of the Corporation as a director, officer, employee, agent, or
advisor of another corporation, partnership, joint venture, trust, limited
liability company, or other entity or enterprise, in each case whether or
not he is acting or serving in any such capacity at the time any liability
or expense is incurred for which indemnification or reimbursement can be
provided under this
<PAGE>
Agreement: provided, that any such action which is brought by Indemnitee
to enforce his rights under this Agreement shall not be a Proceeding
without prior approval of a majority of the board of directors of the
Corporation.
b. The term "Expenses" shall include, without limitation, any
judgments, fines, and penalties against Indemnitee in connection with a
Proceeding; amounts paid by Indemnitee in settlement of a Proceeding; and
all attorneys' fees and disbursements, accountants' fees and
disbursements, private investigation fees and disbursements, retainers,
court costs, transcript costs, fees of experts, fees and expenses of
witnesses, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other
disbursements or expenses reasonably incurred by or for Indemnitee in
connection with prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness in a Proceeding or
establishing Indemnitee's right or entitlement to indemnification for any
of the foregoing.
c. Reference to "other enterprise" shall include employee benefit
plans; references to "fines" shall include any excise tax assessed with
respect to any employee benefit plan; references to "serving at the
request of the Corporation" shall include any service as a director,
officer, employee, agent, or advisor with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interests of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interest of the
Corporation" as referred to in this Agreement.
d. The term "substantiating documentation" shall mean copies of
bills or invoices for costs incurred by or for Indemnitee, or copies or
court or agency orders or decrees or settlement agreements, as the case
may be, accompanied by a sworn statement from Indemnitee that such bills,
invoices, court or agency orders or decrees or settlement agreements,
represent costs or liabilities meeting the definition of "Expenses"
herein.
e. The term "he" and "his" have been used for convenience and mean
"she" and "her" if Indemnitee is female.
2. Indemnity of Director. The Corporation hereby agrees to hold harmless
and indemnify Indemnitee against any and all Expenses incurred by reason of the
fact that Indemnitee is or was a director, officer, agent, or advisor of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, agent or advisor of another corporation,
partnership, joint venture, trust, limited liability company, or other entity or
enterprise, but only if Indemnitee acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
Corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe that his conduct was unlawful. The termination of any Proceeding by
judgment, order of the court, settlement, conviction, or upon a plea of nolo
contendere, or its equivalent, shall not, of itself, create a presumption that
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interest of the Corporation, and
with respect to any criminal proceeding, shall not create a presumption that
such person believed that his conduct was unlawful. The indemnification provided
herein shall be applicable whether or not negligence or gross negligence
2
<PAGE>
of the Indemnitee is alleged or proven. Notwithstanding the foregoing, in the
case of any Proceeding brought by or in the right of the Corporation, Indemnitee
shall not be entitled to indemnification for any claim, issue or matter as to
which Indemnitee has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the Corporation or for
amounts paid in settlement to the Corporation, unless and only to the extent
that, the court in which the Proceeding was brought or another court of
competent jurisdiction determines, on application, that in view of all the
circumstances, the person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper.
3. Choice of Counsel. Indemnitee shall be entitled to employ, and be reimbursed
for the fees and disbursements of, counsel separate from that chosen by any
other person or persons whom the Corporation is obligated to indemnify with
respect to the same or any related or similar Proceeding.
4. Advances of Expenses. Expenses (other than judgments, penalties, fines, and
settlements) incurred by Indemnitee shall be paid by the Corporation, in advance
of the final disposition of the Proceeding, within 10 days after receipt of
Indemnitee's written request accompanied by substantiating documentation and
Indemnitee's unsecured undertaking to repay such amount to the extent it is
ultimately determined and Indemnitee is not entitled to indemnification.
5. Right of Indemnitee to Indemnification Upon Application; Procedure upon
Application. Any indemnification under this Agreement, other than pursuant to
Section 4 hereof, shall be made no later than 45 days after receipt by the
Corporation of the written request of Indemnitee, accompanied by substantiating
documentation, unless a determination is made within said 45-day period by (a)
the board of directors by a majority vote of a quorum consisting of directors
who are not or were not parties to such Proceeding, or (b) independent legal
counsel in a written opinion (which counsel shall be appointed if such a quorum
is not obtainable), that Indemnitee has not met the relevant standards for
indemnification set forth in Section 2 hereof.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by Indemnitee in any court of competent jurisdiction. The
burden of proving that indemnification is not appropriate shall be on the
Corporation. Neither the failure of the Corporation (including its board of
directors or independent legal counsel) to have made a determination prior to
the commencement of such action that indemnification is proper in the
circumstances because Indemnitee has met the applicable standard of conduct, nor
an actual determination by the Corporation (including its board of directors or
independent legal counsel) that Indemnitee has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that
Indemnitee has not met the applicable standard of conduct.
6. Undertaking by Indemnitee. Indemnitee hereby undertakes to repay to the
Corporation any advances of Expenses pursuant to this Agreement to the extent
that it is ultimately determined that Indemnitee is not entitled to
indemnification.
7. Indemnification Hereunder Not Exclusive. The indemnification and
advancement of Expenses provided by this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may be entitled under the Articles or
Bylaws, the Statute, any policy or
3
<PAGE>
policies of directors' and officers' liability insurance, any agreement, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. However, Indemnitee shall reimburse
the Corporation for amounts paid to him under this Agreement in an amount equal
to any payments received pursuant to such other rights to the extent such
payments duplicate any payments received pursuant to this Agreement.
8. Continuation of Indemnity. All agreements and obligations of the Corporation
contained herein shall continue during the period Indemnitee is a director,
officer, agent, or advisor of the Corporation (or is or was serving at the
request of the Corporation as a director, officer, employee, agent, or advisor
of another corporation, partnership, joint venture, trust, limited liability
company, or other enterprise) and shall continue thereafter so long as
Indemnitee shall be subject to any possible Proceeding.
9. Partial Indemnification. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Corporation for some or a portion of
Expenses, but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify Indemnitee for the portion of such Expenses to which
Indemnitee is entitled.
10. Settlement of Claims. The Corporation shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any
Proceeding effected without the Corporation's written consent. The Corporation
shall not settle any Proceeding in any manner which would impose any penalty or
limitation on Indemnitee's rights under this Agreement without Indemnitee's
written consent. Neither the Corporation nor Indemnitee will unreasonably
withhold its or his consent to any proposed settlement. The Corporation shall
not be liable to indemnify Indemnitee under this Agreement with regard to any
judicial award if the Corporation was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of such action.
11. Enforcement.
a. The Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on the Corporation
hereby in order to induce Indemnitee to serve as a director or officer of
the Corporation, and acknowledges that Indemnitee is relying upon this
Agreement in continuing as a director or officer.
b. In the event Indemnitee is required to bring any action or other
proceeding to enforce rights or to collect monies due under this Agreement
and is successful in such action, the Corporation shall reimburse
Indemnitee for all of the Indemnitee's Expenses in bringing and pursuing
such action.
12. Governing Law; Binding Effect; Amendment and Termination.
a. This Agreement shall be interpreted and enforced in accordance
with the laws of the State of Nevada.
b. This Agreement shall be binding upon the Corporation, its
successors and assigns, and shall inure to the benefit of Indemnitee, his
heirs, personal representatives, and assigns, and to the benefit of the
Corporation, its successors and assigns.
4
<PAGE>
c. No amendment, modification, termination, or cancellation of this
Agreement shall be effective unless in writing signed by the Corporation
and Indemnitee.
13. Severability. If any provision of this Agreement shall be held
to be invalid, illegal, or unenforceable.
a. the validity, legality, and enforceability of the remaining
provisions of this Agreement shall not be in any way affected or impaired
thereby; and
b. to the fullest extent possible, the provisions of this Agreement
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal, or unenforceable.
Each section of this Agreement is a separate and independent portion of
this Agreement. If the indemnification to which Indemnitee is entitled as
respects any aspect of any claim varies between two or more sections of this
Agreement, that section providing the most comprehensive indemnification shall
apply.
14. Notice. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if in
writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by overnight express delivery; if
sent by registered mail or certified mail, return receipt requested and postage
prepaid; or if sent by overnight express delivery:
If to the Corporation, to: RoomSystems, Inc.
390 North 3050 East
St. George, Utah 84790
Telecopy No.: (435) 628-8611
If to the Indemnitee, to: Alan C. Ashton
261 East 1200 South
Orem, Utah 84058
or such other addresses and facsimile numbers as shall be furnished by any party
in the manner for giving notices hereunder, and any such notice, demand,
request, or other communication shall be deemed to have been given as of the
date so delivered or sent by facsimile transmission, five business days after
the date so mailed, or one day after the date so sent by overnight delivery.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executive this Agreement on
and as of the day and year first above written.
Corporation:
ROOMSYSTEMS, INC.
By: /s/ Steven L. Sunyich
----------------------------
Steven L. Sunyich, President
----------------------------
Indemnitee: /s/ Alan C. Ashton
----------------------------
ALAN C. ASHTON
6
<PAGE>
Exhibit 10.08
ROOMSYSTEMS, INC. SHAREHOLDERS' AGREEMENT AND PROXY
This Shareholders' Agreement and Proxy ("Agreement") is entered into as of
August 17, 1999, by and among Ash Capital, LLC ("Ash"), RoomSystems, Inc. (the
"Company"); Steven Sunyich, individually, as trustee of the McCagno Family IRR
Trust and the WRS Family Trust, and as general partner of the following limited
partnerships: Sunyich family LTD Partnership, Riggs Family Limited Partnership,
Kelly Family LTD Partnership, and SBD Partnership; Joy Sunyich; William R.
Shupe, individually, as trustee for the Sunyich Family IRR Trust, the Toleman
Family Trust, the DM Trust and the Kelley Family Trust, and as general partner
of the Riggs Family Limited Partnership and SBD Partnership; Derek K. Ellis
individually and as general partner of SBD Partnership Tryon Marietta, LLC,
Gregg Hrncir, manager of Brynwood, LLC, and Steven Moulton (all parties except
Ash and the Company shall be together referred to herein as the "Shareholders").
RECITALS:
WHEREAS, as a material inducement to enter into that certain Subscription
Agreement between Ash and the Company of even date herewith related to the
purchase by Ash of Series B. Preferred Stock issued by the Company, (which
Subscription Agreement together with all ancillary agreements entered into
simultaneously therewith shall be referred to herein as the "Subscription
Agreement"), and the purchase of Series B Preferred Stock thereunder, the
Shareholders, which presently hold more than 50% of the outstanding capital
stock of the Company on a fully-diluted basis, desire to enter into this
Shareholders' Agreement and Proxy with Ash and the Company, intending that such
shall be binding upon the Shareholders and upon the partners, shareholders,
officers, directors or trustees of the Shareholders who may receive distribution
of Company stock from the Shareholders.
WHEREAS, each of the Shareholders desires to enter into this Shareholders'
Agreement and Proxy as set forth herein in order to elect a representative of
Ash as a member of the Company's board of directors, to elect a majority of the
board who are outside directors, to provide for certain first offer and co-sale
rights to Ash, and to vote in favor of a reverse split of the common (but not
the Series B Preferred) shares of the Company.
NOW, THEREFORE, in consideration of the foregoing recitals which are
incorporated herein by this reference, and of the mutual covenants and
agreements contained herein, the parties hereto hereby agree as follows:
1. Agreement to Vote and Proxy.
1.1 Share Voting. Each of the Shareholders agrees to cause all voting
securities in the Company now held or hereafter acquired by such
Shareholders (the "Voting Shares") to be voted:
1.1.1 for the election of one nominee of Ash to serve as a
director on the company's board of directors, which initially Ash
agrees shall be Alan C. Ashton,
<PAGE>
such that Ash shall have its designated representative elected to the
Company's board of directors ("Ash Representative"). Eash of the
Shareholders hereby grants a proxy, coupled with an interest, to Ash,
or such substitute as Ash may appoint (the "Proxy Holder"). This
irrevocable proxy is given by the Shareholders to the Proxy Holder to
nominate the Ash Representative and vote the Voting Shares to elect the
Ash Representative to the Company's board of directors:
1.1.2 to maintain the size of the board at five (5) members, a
majority of whom shall at all times consist of individuals who are not
employees or paid consultants of the Company; and
1.1.3 in favor of a 2 to 1 reverse split of the common (but not
the Series B Preferred) shares of the Company.
1.2 Vacancy. If the Ash Representative should cease to serve on the
Company's board of directors for any reason, including but not limited to
removal by the Shareholders, Ash will be entitled to nominate and elect a
new Ash Representative to the Company's board of directors. Ash shall have
the right to direct the removal of the Ash Representative by the
Shareholders, with or without cause, at any time in its sole discretion.
The parties acknowledge that Ash shall have the sole authority to nominate
the successor to the Ash Representative, except as otherwise specifically
provided in Section 1.4 with respect to the conditional nomination rights
of the Shareholders.
1.3 Reservation of Rights. All other voting rights and powers of the
Shareholders with respect to such Voting Shares, specifically including the
election of members of the board other than the Ash Representative (subject
to the provisions of paragraph 1.1.2 above), the right to vote, assent, or
consent with respect thereto and to take part in and to consent to any
corporate or shareholder's action of any kind whatsoever, and to receive
distributions with respect to said Voting Shares, are expressly reserved to
the Shareholders separately.
1.4 Designation of Nominees. In any election of directors of the
Company, the Proxy Holder shall vote all of the Voting Shares in favor of
the Ash Representative. Ash agrees that it will select the Ash
Representative for election to the Company's board of directors, (1) within
thirty (30) days after receiving notice from the Company that the Company
wishes to select nominees for the board of directors for the Company's next
annual shareholders meeting, (2) within five (5) days after receiving
notice from the Company of a special meeting of shareholders or notice of a
meeting of the board of directors convened for the purpose of filling a
seat or seats on the board of directors vacated by an Ash Representative,
or (3) within five (5) days after receiving notice and a copy of a
shareholder action by written consent, without a meeting, to elect
directors or to fill a vacancy on the board of directors. In the event Ash
should fail to make a selection of the Ash Representative in the time
period specified above, the seat left open by such failure to timely make a
selection shall be filled by a nomination and election by the Shareholders
conducted in accordance with the ordinary election procedures of the
2
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Company, without prejudice to Ash's right to nominate and elect future
representatives to the Company's board of directors.
1.5 Legend. Any Voting Shares, whether now held or hereafter acquired
by any of the Shareholders, if sold or otherwise transferred by any of them
during the term of this Agreement, will continue to be subject to the terms
hereof, and it will be a condition of any such transfer that the
transferring shareholder obtains from such transferee(s) a consent to be
bound by the terms hereof. To effectuate this provision, each certificate
representing the Voting Shares now held or hereafter acquired by any
Shareholder will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO VOTING
RESTRICTIONS AND AN IRREVOCABLE PROXY CONTAINED IN THE ROOMSYSTEMS, INC.
SHAREHOLDERS' AGREEMENT AND PROXY DATED AUGUST 17, 1999, A COPY OF WHICH
AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF
ROOMSYSTEMS, INC.
1.6 Injunctive Relief. Each Shareholder acknowledges and agrees that
any breach of this Agreement by any of them will cause irreparable harm to
the other parties hereto that may not be adequately compensated by money
damages. Accordingly, in the event of a breach or threatened breach by the
Proxy Holder or by any Shareholder of any provision of this Agreement, the
other party or parties will be entitled to injunctive or other preliminary
or equitable relief, including the right to compel the Proxy Holder or any
Shareholder to vote shares in accordance with the provisions of this
Agreement, in addition to such other remedies as may be available for any
such breach or threatened breach, including but not limited to, the
recovery of damages.
The Shareholders further agree that, notwithstanding any failure of the
proxy given in paragraph 1 above, they will each jointly and severally be bound
to vote any Voting Shares of the Company in accordance with the provisions of
paragraph 1 hereof, except as otherwise expressly permitted by this Agreement;
and further that they will take no actions and will not enter any agreements
inconsistent with or that conflict with the provisions of this Agreement or
their obligations hereunder.
2. Certain Defined Terms. As used in this Agreement, the following terms shall
have the respective meanings:
2.1 "Shareholders Stock" shall mean and include all shares of Common
Stock, Series A Preferred Stock, Series B Preferred Stock, and all other
securities of the Company which may be exercised, converted into or issued
in exchange for, or in respect of, shares of Common Stock (whether by way
of stock split, stock dividend, combination, conversion, reclassification,
reorganization, or any other means) now owned by the Shareholders or its
assignees or as may be distributed to persons holding ownership interests
in any Shareholder.
3
<PAGE>
2.2 A "Selling Holder" shall mean the Shareholders, or any assignee
thereof desiring to sell shares of Shareholders Stock.
2.3 "Shares" shall mean and include all shares of the Shareholders
Stock to be sold by a Selling Holder.
3. Right of First Offer on Dispositions by the Shareholders and its Assignees.
3.1 First Offer.
(a) The Selling Holder shall, prior to any proposed sale, transfer, or
conveyance of any of its Shares, offer to Ash by written notice the right
to purchase such Shares (the "Offered Shares") for cash at an amount equal
to the price or other consideration for which such Shares are to be offered
(the "First Offer"). If the consideration for such proposed sale was other
than cash, the cash equivalent of such non-cash consideration shall be
determined by the Company's Board of Directors in good faith. The Selling
Holder's written notice to Ash shall describe the Offered Shares and
specify the number, price, payment terms for the Offered Shares, a true and
complete copy of any offer and all other material terms and conditions of
the transfer.
(b) Ash may elect to purchase all of the Offered Shares or any lesser
number by written notice thereof given by it to the Selling Holder within
thirty (30) days delivery of the First Offer (the " Initial First Offer
Period").
3.2 Election to Purchase. If Ash elects to purchase all or any part of
the Offered Shares pursuant to Section 3.1 hereof, the written notice
provided to the Selling Holder shall set forth the number of Offered Shares
Ash desires to purchase and shall be given to the Selling Holder in
accordance with Section 7.5 below within the Initial or Second First Offer
Period, as applicable. Such communication shall, when taken in conjunction
with the First Offer, be deemed to constitute a valid, legally binding and
enforceable agreement for the sale and purchase of such Offered Shares.
Sales of the Offered Shares pursuant to this Section 3 shall be made at the
offices of the Company the forty-fifth (45th) day following the date the
First Offer was made (or if any such forty-fifth (45th) day is not a
business day, then on the next succeeding business day). Such sales shall
be effected by the Selling Holder's delivery to Ash electing to purchase
Offered Shares of a certificate or certificates evidencing the Offered
Shares to be purchased by it, duly endorsed for transfer to Ash against
payment to the Selling Holder of the purchase price therefor by Ash.
3.3 Sale Upon Failure to Purchase. If Ash does not purchase all of the
Offered Shares, the Offered Shares not so purchased may be sold by the
Selling Holder at any time within one hundred twenty (120) days after the
date the First Offer was made, subject to the provisions of Section 4. Any
such sale shall be at a price and upon terms and conditions not more
favorable to the purchaser than those specified in the First Offer. Any
Offered Shares not sold within such one hundred twenty (120)-day period
shall continue to be subject to the requirements of this Section 3. If
Offered Shares are sold
4
<PAGE>
pursuant to this Section 3 to a purchaser who is not a party to this
Agreement, the Offered Shares so sold shall no longer be subject to this
Agreement.
4. Right of Partici pation in Sales.
4.1 Co-Sale Rights. If at any such time a Selling Holder desires to
sell, assign, transfer, or otherwise convey Shares owned by such holder to
any person or entity other than Ash (the "Buyer") after complying with the
requirements of Section 3 hereof, such Selling Holder shall provide written
notice to Ash, in accordance with Section 7.5 hereof, setting forth the
name of the Buyer, the aggregate number of Shares desired to be sold (the
"Co-Sale Securities") and the terms and conditions for the sale (the
"Co-Sale Offer"). As a condition to the sale of any Co-Sale Securities by
the Selling Holder, Ash shall have the right to participate in the Co-Sale
Offer, at the same price per share and on the same terms and conditions as
set forth in the Co-Sale Offer, that portion of the Co-Sale Securities
equal to the product obtained by multiplying (i) the aggregate number of
Co-Sale Securities to be offered, by (ii) twenty-five percent (25%).
4.2 Notice of Participation. Ash wishing to so participate in any sale
under this Section 4 shall notify the Company and selling Holder in writing
of such intention as soon as practicable after Ash' receipt of the Co-Sale
Offer made pursuant to Section 4.1. and in any event within twenty (20)
days after the date the Co-Sale Offer was made. Such notification shall be
given to such Shareholders in accordance with Section 7.5 below.
4.3 Terms of Co-Sale. The Selling Holder and Ash shall sell to the
Buyer all, or at the option of the Buyer, any part of the Co-Sale
Securities proposed to be sold by them at the price and upon other terms
and conditions not more favorable to the Buyer than those in the Co-Sale
Offer provided by the Selling Holder under Section 4.1 above; provided,
however, that any purchase of less than all of such Shares by the Buyer
shall be made from the Selling Holder and Ash pro rata based upon the
relative amount of the Shares that the Selling Holder and Ash are otherwise
entitled to sell pursuant to Section
4.4 Co-Sale Shares Released. Any Shares sold pursuant to this Section 4
shall no longer be the subject to this Agreement.
5. Permitted Transfers
5.1 Certain Transactions. Sections 3 and 4 of this Agreement shall not
apply to any transfer or disposition of Shares described in this Section
5.1, provided, however, that any transferee shall receive and hold such
Shares subject in all respects to the provisions of this Agreement, and
that there shall be no further transfer of such Shares except in accordance
herewith.
(a) A Selling Holder shall be permitted to sell, assign, transfer,
or otherwise convey Shares to such Selling Holder's spouse, parents, or
children, or other members of the founder's family (including relatives by
marriage), or to a custodian,
5
<PAGE>
trustee, or other fiduciary for the account of the Selling Holder or
members of his family in connection with a bona fide estate planning
transaction or estate administration;
(b) A Selling Holder shall be permitted to sell, assign, transfer,
or otherwise convey Shares when such disposition, combined with all prior
sales, assignments, transfers, or other conveyances of such Selling Holder
that occurred in the same calendar year, amounts to less than 10,000
Shares.
(c) The provisions shall not apply to transfers by operation of
law.
6. Prohibited Transfers
6.1 Prohibited Transfer. In the event a Selling Holder sells any Shares
of the Company in contravention of the participation rights of Ash under
paragraph 4 of this Agreement (a "Prohibited Transfer"), Ash, in addition
to such other remedies as may be available at law, in equity or hereunder,
shall have the put option provided below, and the Selling Holder shall be
bound by the applicable provisions of such put option.
6.2 Put Option. In the event of a Prohibited Transfer by a Selling
Holder, Ash shall have the right to sell to such Selling Holder, and, if
such right is exercised, such Selling Holder shall have the obligation to
purchase from Ash a number of shares of common stock (including preferred
stock convertible into common stock) equal to the number of shares Ash
would have been entitled to transfer to the Buyer in the Prohibited
Transfer pursuant to the terms hereof. Such sale shall be made on the
following terms and conditions:
(a) The price per share at which the shares are to be sold to such
Selling Holder shall be equal to the price per share paid by Buyer to
such Selling Holder in the Prohibited Transfer. Such Selling Holder
shall also reimburse Ash for any and all fees and expenses, including
legal fees and expenses, promptly following demand therefor, incurred
pursuant to the exercise or the attempted exercise of Ash's rights
under this Section.
(b) Within 20 days after the later of the dates on which Ash (i)
received notice from such Selling Holder of the Prohibited Transfer, or
(ii) otherwise become aware of the Prohibited Transfer, Ash shall, if
exercising the put option created hereby, deliver to such Selling
Holder the certificate or certificates representing shares to be sold,
each certificate to be properly endorsed for transfer.
(c) Such Selling Holder shall, upon receipt of the certificate or
certificates for the shares to be sold by Ash, immediately pay the
aggregate purchase price thereof and the amount of reimbursable fees
and expense, as specified above, by certified check or bank draft made
payable to the order of Ash.
6
<PAGE>
Notwithstanding the foregoing, any attempt to transfer shares of the
Company in violation hereof shall be void and the Company agrees it will not
effect such a transfer nor will it treat any alleged transferee as the holder of
such shares.
7. Miscellaneous
7.1 Term. This Agreement shall terminate (a) immediately prior to the
consummation of the first firm commitment underwritten public offering of not
less than $12,000,000 in gross proceeds pursuant to any effective registration
statement on Form S-1 (or its then equivalent) under the Securities Act of 1933,
as amended, or (b) the tenth anniversary of the date of this Agreement,
whichever occurs first.
7.2 Failure to Deliver Shares. If any party becomes obligated to sell any
shares to another party under this Agreement and fails to deliver such shares in
accordance with the terms of this Agreement, the non-selling party may, at its
option in addition to all other remedies it may have, send to such other party
the purchase price for such share as is herein specified. Thereupon, the
Company, upon written notice to the party who failed to deliver the shares, (a)
shall cancel on its books the certificate or certificates representing the
shares to be sold, and (b) shall issue, in lieu thereof, in the name of the
non-selling party, a new certificate or certificates representing such shares,
and thereupon all of the selling party's rights in and to such shares shall
terminate.
7.3 Specific Enforcement. The parties hereto expressly agree that they will
be irreparably damaged if this Agreement is not specifically enforced. Upon a
breach or threatened breach of the terms, covenants and/or conditions of this
Agreement by any party, the non-selling or non-defaulting party shall, in
addition to all other remedies, be entitled to a temporary or permanent
injunction, without showing any actual damage, and/or a decree for specific
performance, in accordance with the provisions hereof.
7.4 Legend. Each certificate evidencing any of the Shareholders Stock shall
bear the legends substantially as follows (and within a reasonable time from the
execution of this Agreement, each such holder shall submit their certificate(s)
to the Company for the placement of the following legends, if necessary):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, (THE "SECURITIES ACT") AND ARE
"RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER THE
SECURITIES ACT. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD OR TRANSFERRED WITHOUT COMPLYING WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION OR OTHER COMPLIANCE UNDER THE SECURITIES ACT.
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN
ROOMSYSTEMS, INC. SHAREHOLDERS' AGREEMENT AND PROXY, DATED AS OF AUGUST 17,
1999, A COPY OF WHICH IS AVAILABLE FOR
7
<PAGE>
INSPECTION AT THE GENERAL OFFICES OF ROOMSYSTEMS, INC. CONTAINING RIGHTS OF
FIRST REFUSAL AND CO-SALE RIGHTS. NONE OF THE SHARES EVIDENCED HEREBY OR BY ANY
SUBSEQUENT CERTIFICATE MAY BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED
OF EXCEPT IN STRICT COMPLIANCE WITH THE TERMS AND CONDITIONS OF SUCH
SHAREHOLDERS' AGREEMENT AND PROXY. ROOMSYSTEMS, INC. WILL NOT REGISTER THE
TRANSFER OF THE WITHIN SECURITIES ON ITS CORPORATE RECORDS NOR WIILL IT TREAT
ANY PURPORTED TRANSFEREES AS THE HOLDER THEREOF WITHOUT THE PRIOR WRITTEN
CONSENT OF THOSE PERSONS IDENTIFIED IN SUCH AGREEMENT.
7.5 Notices. Notices given hereunder shall be deemed to have been duly
given on the date of personal delivery, on the date of postmark if mailed by
certified or registered mail, return receipt requested, or on the date sent by
telecopier or telex to the party being notified at his or its address specified
on the applicable signature page hereto or such other address as the addressee
may subsequently notify the other parties of in writing.
7.6 Entire Agreement and Amendments. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and neither
this Agreement nor any provision hereof may be waived, modified, amended or
terminated except by a written agreement signed by (a) the Company, (b)
Shareholders or Selling Holders holding more than 50% of the Shareholders Stock,
and (c) Ash. To the extent any term or other provision of any other indenture,
agreement, or instrument by which any party hereto is bound conflicts with this
Agreement, this Agreement shall have precedence over such conflicting term or
provision.
7.7 Governing Law; Successors and Assigns. This Agreement shall be governed
by the laws of Utah and shall be binding upon the heirs, personal
representatives, executors, administrators, successors, and assigns of the
parties.
7.8 Waivers. No waiver of any breach or default hereunder shall be
considered valid unless writing, and no such waiver shall be deemed a waiver of
any subsequent breach or default of the same or similar nature.
7.9 Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity, or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid, or unenforceable provision were not contained herein.
7.10 Captions. Captions are for convenience only and are not deemed to be
part of this Agreement.
7.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has executed or caused this
Shareholders' Agreement and Proxy to be executed by its duly authorized
representative, as of the day and year first above written.
ASH CAPITAL, LLC
By Providence Management, LLC
By /s/ James C. Savas
----------------------------------------
James C. Savas or Dave Harkness, Managers
ROOMSYSTEMS, INC.
By /s/ Steven L. Sunyich
------------------------------------------
Steven L. Sunyich, Chief Executive Officer
SHAREHOLDERS
/s/ Steven L. Sunyich
---------------------
Steven L. Sunyich, Individually, as
trustee of The McCagno Family IRR
Trust and the WRS Family Trust, and as
general partner of the following
limited partnerships: Sunyich Family
LTD Partnership, Riggs Family Limited
Partnership, Kelly Family LTD
Partnership, and SBD Partnership
Tryon Marietta, LLC
-------------------
By: , Manager
----------------
/s/ William R. Shupe
--------------------
William R. Shupe, Individually, as
trustee for the Sunyich Family IRR
Trust, the Toleman Family Trust, the
DM Trust and as general partner of the
Riggs Family Limited Partnership and
SBD Partnership
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<PAGE>
/s/ Derek K. Ellis
------------------
Derek K. Ellis, Individually and as general
partner of the SBD Partnership
/s/ K. Joy Sunyich
------------------
Joy Sunyich
/s/ Gregory L. Hrncir
---------------------
Gregg Hrncir, Manager of Brynwood, LLC
/s/ Steven A. Moulton
----------------------
Steven Moulton
<PAGE>
Exhibit 10.09
AGREEMENT OF UNDERSTANDING
"THIS AGREEMENT OF UNDERSTANDING" (this "Agreement") made as of the 17th
day of August 1999, by and between Ash Capital, LLC ("Ash Capital") and
RoomSystems, Inc., a Nevada corporation (the "Corporation").
R E C I T A L S :
WHEREAS, pursuant to that certain "Private Placement Memorandum" (the
"Memorandum"), dated May 24, 1999, the Corporation has offered certain of its
Series B Preferred Shares (the "Preferred Shares") for sale, privately; and
WHEREAS, Ash Capital desires to purchase with a small group of investors
(referred to herein sometimes as the "Investment Syndicate") up to one million
(1,000,000) of the Preferred Shares according to the terms and conditions set
forth in the Memorandum (the "Ash Capital Investment"); and
WHEREAS, the Corporation has offered a seat on its Board of Directors to
Alan Ashton, an affiliate of Ash Capital and as an inducement to him, the
Corporation has offered certain options to Ash Capital to purchase its common
stock (the "Options"); and
WHEREAS, Ash Capital requires, preparatory to completing the Ash Capital
Investment, that the Corporation memorialize certain covenants outlined in the
Memorandum relating to the future reverse split of the Corporation's common
stock and the protection of the conversion price of the Preferred Shares at the
time the Corporation completes an Initial Public Offering (the "IPO"); and
WHEREAS, the parties intend to set forth herein the terms and conditions
relating to the Ash Capital Investment.
NOW, THEREFORE, in consideration of the monetary consideration herein
recited, the mutual promises herein contained and subject to the fulfillment of
the conditions herein set forth, the parties hereby agree as follows:
1. The Memorandum. The Memorandum sets forth the essential disclosures,
terms, and conditions relating to and describing an investment in the Preferred
Shares. The Corporation has delivered a copy of the Memorandum to Ash Capital
for review; and has delivered attendant thereto a copy of the "Subscription
Agreement" (the "Subscription Agreement"), which must be completed, executed and
delivered to the Corporation, as described in the Memorandum, by all investors
in the Preferred Shares. A copy of the Subscription Agreement is attached hereto
as Exhibit "A." The Corporation has also delivered to Ash Capital a copy of its
financial statements and projections.
2. Reverse Split of the Corporation's Shares of Common Stock. The
Corporation has disclosed to Ash Capital and to all investors in the Preferred
Shares, that it may effect a reverse split of its shares of common stock prior
to the IPO (the "Reverse"). The Memorandum warrants and guarantees that the
Preferred Shares are not subject to the Reverse.
<PAGE>
As described in the Memorandum, the Preferred Shares convert into common shares
of the Corporation at the time of the IPO (the "Converted Shares"). The
Converted Shares shall not be subject to the Reverse.
3. Price Protection of the Converted Shares. The Converted Shares shall be
issued at the time of the IPO and shall not be subject to the Reverse. The
Converted Shares shall automatically convert into the Corporation's common
shares at the time of the IPO at the exercise price of the lesser of $3.00 or
fifty percent (50%) of the initial IPO price per share with such other terms as
are specifically set forth on the Certificate of Designation for the Preferred
Shares, a copy of which is attached as Exhibit "B," and which the Corporation
covenants will be filed with the Nevada Secretary of State prior to breaking
escrow pursuant to the Escrow Agreement described hereinafter.
4. Seat on the Corporation's Board of Directors. Upon the completion of the
Ash Capital Investment and the Closing, Ash Capital shall be entitled to one (1)
seat on the Corporation's board of directors (the "Board"). It is anticipated
that Mr. Alan Ashton shall be Ash Capital's initial designee to the Board and
shall first be named to the board after the Corporation obtains satisfactory
errors and omissions/director liability insurance and executes the
Indemnification Agreement in the form attached hereto as Exhibit "C." If
approved by the Corporation's shareholders, Mr. Ashton shall serve until such
time as he designates a replacement member to the Board from Ash Capital. The
Corporation shall execute and faithfully perform the Shareholders' Agreement and
Proxy in the form attached hereto as Exhibit "D."
A. Shares and Options. In order to induce Alan Ashton to serve on the
Board, the Corporation agrees to deliver to Alan Ashton options to purchase
certain of its shares of common stock as follows: ninety-three thousand seven
hundred fifty (93,750) shares of its common stock at the exercise price of $3.60
per share, according to the terms and conditions described in the form set forth
on Exhibit "E-1," attached hereto for the first year of his tenure on the Board:
and seventy-five thousand (75,000) shares of its common stock at the exercise
price of $6.60 per share, according to terms and conditions described in the
form attached hereto as Exhibit "E-2," if Mr. Ashton or his designee serves an
additional year.
5. Ash Capital Investment Formula. The Memorandum describes a maximum
cumulative investment of $4,000.00 (the "Maximum Investment"). The Corporation
has amended the Memorandum to expand the Maximum Investment thereunder to
$8,000.00. The Ash Capital Investment percentage shall be calculated as follows:
The amount actually invested under the Memorandum by Ash Capital divided by
$3.00. This identifies the number of Preferred Shares actually purchased. If the
Maximum Investment is achieved, the percentage of shares held by Ash Capital
pursuant to the Ash Capital Investment shall be multiplied against the total
number of the Corporation's shares (common and preferred) then outstanding. For
example, if the Reverse is ultimately a two-for-one reverse, the total number of
shares outstanding would be approximately 4,138,270 (number of shares of common
and preferred stock outstanding subsequent to the Reverse, as more fully
described on Exhibit "F," attached hereto). This number added to 2,000,000 (the
total number of the Preferred Shares if the Maximum Investment is subscribed)
would equal the total number of shares of the Corporation's common and preferred
stock then outstanding. If the Corporation oversubscribes the Maximum
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Investment, Ash Capital's percentage ownership in the Corporation shall be
reduced accordingly. The percentage ownership held by Ash Capital upon breaking
of escrow shall be not less than the amount shown on Exhibit "F," unless such is
a result solely of over-subscriptions.
6. Consulting Agreement. The Corporation shall execute and faithfully
perform the Consulting Agreement with Providence Management, LLC in the form
attached hereto as Exhibit "G."
7. Escrow Agreement. The Corporation shall execute and faithfully perform
the Escrow Agreement with Ash Capital and U.S. Bank National Association
("Escrow Agent") in the form attached hereto as Exhibit "H." This Agreement and
all Exhibits hereto shall be delivered to the Escrow Agent, to be held and dealt
with by the Escrow Agent as set forth therein. Similar agreements shall be
executed in favor of each member of the Investment Syndicate as described below
in paragraph 9A.
8. Registration Rights Agreement. The Corporation shall execute and
faithfully perform the Registration Rights Agreement with Ash Capital and other
members of the Investment Syndicate as described below in paragraph 9A in the
form attached hereto as Exhibit "I."
9. Closing. It is anticipated that this Agreement and the Subscription
Agreement will be completed and executed prior to August 18, 1999; and the Ash
Capital Investment will be tendered to the escrow described hereinabove as soon
as possible thereafter (the "Closing"). At the time of the execution of this
Agreement including Exhibits and the delivery thereof to the Escrow Agent, such
shall be held and dealt with by the Escrow Agent pursuant to the terms of the
Escrow Agreement.
A. Separate Closing. The parties agree that the Closing for Ash
Capital, relative to the Ash Capital Investment may be earlier than the Closing
for the remaining members of the Investment Syndicate and that all of the terms,
conditions, representations and warranties herein (including Exhibits) shall
apply fully to, and be for the benefit of, such persons and entities, even
though not a party hereto, the parties intending that such persons shall be
third party beneficiaries hereof. Such Investment Syndicate may consist of the
following persons or entities or their affiliates: SKM Investments, LLC, a Utah
limited liability company, Cherokee & Walker, LLC, Birchbrook, LLC, and any
other entities introduced to the Corporation by Ash Capital or its affiliates.
10. Conduct of the Corporation's Business Pending the Closing: The
Corporation agrees that, pending the Closing, the business of the Corporation
shall be conducted only in the ordinary and usual course and substantially in
accordance with its prior business practices.
11. Miscellaneous Provisions. The following miscellaneous provisions are an
integral part of this Agreement:
A. Survival of Representations and Warranties. The respective
obligations of Purchaser and Seller hereunder and all representations and
warranties made in this Agreement, all Exhibits hereto, the Memorandum and all
certificates and documents delivered pursuant to hereto shall survive the
Closing.
3
<PAGE>
B. Attorneys' Fees. In the event suit is brought to enforce the
provisions of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees and costs incurred in connection therewith.
C. Entire Agreement. This Agreement and the Exhibits hereto constitute
the entire agreement between the parties with respect to the matters covered
herein and supercedes any prior agreements or negotiations with respect to the
same. This Agreement is binding upon, and shall inure to the benefit of, the
parties hereto and their respective successors and assigns.
D. Amendments Only in Writing. This Agreement may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
E. Notices. All notices provided for herein shall be in writing and
shall be given by first class mail, certified or registered, postage prepaid,
addressed to the parties at the addresses shown below or to the Investment
Syndicate at the addresses shown in their respective subscription agreements.
F. Costs. It is agreed that the costs and expenses, including
attorneys' fees, incurred by Ash Capital in conjunction with its due diligence
and closing of this Agreement and the exhibits hereto shall be paid by the
Corporation, regardless of the disposition of funds and documents by the Escrow
Agent, unless Ash elects not to proceed with the investment pursuant to the due
diligence walk-right provisions of paragraph 3d of the Escrow Agreement. The
Corporation shall promptly reimburse Ash Capital upon presentment of its bills
for such expenses, whether or not Ash Capital ever receives from the Escrow
Agent an original of this Agreement signed by the Corporation.
G. Section Headings. The section headings in this Agreement are
inserted for convenience only and shall not be deemed to constitute a part of
this Agreement.
H. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be deemed one and the same agreement. This
Agreement shall become a binding obligation upon execution and delivery of this
Agreement or counterpart hereof by each of the parties hereto.
I. Governing Law. This Agreement shall be governed by, and construed
and enforced in all respects in accordance with the laws of the State of Utah.
4
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed on the day first
written above.
ROOMSYSTEMS, INC.
By: /s/ S. L. Sunyich
---------------------------
Its: CEO
390 North 3050 East
St. George, Utah 84790
ASH CAPITAL, LLC
by Providence Management, LLC, Manager
By: /s/
---------------------------
Its: MANAGER
1400 S. Foothill Drive, Suite B25
Salt Lake City, Utah 84108
5
<PAGE>
Exhibit 10.10
FIRST AMENDMENT TO AGREEMENT OF UNDERSTANDING
THIS FIRST AMENDMENT TO AGREEMENT OF UNDERSTANDING (this "First
Amendment") is made as of the 30th day of September 1999, by and between Ash
Capital, LLC, a Utah limited liability company ("Ash Capital"), C&W/RSI
Partners, LLC, a Utah limited liability company ("C&W"), SKM Investments, LLC a
Utah limited liability company ("SKM"), Thunder Mountain Properties, LC, a Utah
limited liability company ("Thunder Mountain"), and RoomSystems, Inc., a Nevada
corporation (the "Corporation").
R E C I T A L S :
WHEREAS, Ash Capital and the Corporation are parties to that certain
Agreement of Understanding dated August 17, 1999 ("Agreement of Understanding")
(capitalized terms used herein but not defined shall have the meanings ascribed
to them in the Agreement of Understanding); and
WHEREAS, under the terms of the Agreement of Understanding, Ash Capital
agreed to purchase with a small group of investors (the "Investment Syndicate")
up to one million (1,000,000) Preferred Shares, such shares held to be referred
to herein as the "Preferred Shares"; and
WHEREAS, C&W has for all purposes replaced both Cherokee & Walker, LLC and
Birchbrook, LLC in the Agreement of Understanding and in all other agreements
among the parties; and
WHEREAS, C&W, SKM, and Thunder Mountain are now members of the Investment
Syndicate; and
WHEREAS, members of the Investment Syndicate have each entered into
individual subscription agreements, registration rights agreements and other
agreements setting forth the terms of each member's respective investment in the
Corporation; and
WHEREAS, C&W, SKM, and Thunder Mountain are intended third party
beneficiaries to the Agreement of Understanding and wish to become joinders to
the Agreement of Understanding by executing this First Amendment and the
Corporation has consented and agreed thereto; and
WHEREAS, the parties have negotiated additional terms to their respective
investments in the Corporation; and
WHEREAS, the parties intend to set forth herein such additional terms and
conditions relating to their respective investments in the Corporation.
NOW, THEREFORE, in consideration of the monetary consideration recited in
the Agreement of Understanding and this First Amendment, the recitals set forth
above which are
<PAGE>
incorporated herein by this reference, the mutual promises herein contained and
subject to the fulfillment of the conditions herein set forth, the parties agree
as follows:
1. Joinder by and Substitution of Parties. C&W, SKM, and Thunder Mountain,
all of whom are third party beneficiaries to the Agreement of Understanding,
hereby join as parties to the Agreement of Understanding, and each assumes and
agrees to the terms and conditions set forth in the Agreement of Understanding.
The Corporation hereby consents to and agrees with such joinder and with the
substitution of C&W in the place of both Cherokee & Walker, LLC and Birchbrook,
LLC in the Agreement of Understanding, Registration Rights Agreement, and
Subscription Agreement. The irrevocable stock power executed by Cherokee Walker,
LLC in favor of Birchbrook, LLC shall be returned to C&W and voided. In
addition, the parties may, but shall not be required to, choose to execute
replacement agreements for the Registration Rights Agreement and Subscription
Agreement between C&W and the Corporation and return to and cancel the
previously executed agreements.
2. C&W Participation in Meetings of the Board of Directors. At all times
C&W continues to hold Preferred Shares, C&W will be entitled to designate a
representative to attend and participate in meeting of the Corporation's board
of directors, although such representative will not be entitled to vote at any
such meeting and will not be considered to be a member of the board of
directors. Any notice of meetings (together with any materials, reports or other
information distributed to directors in connection with any such meetings) will
be sent to C&W in the same manner as prescribed by applicable corporate law to
be sent to directors of the Corporation. In the event the board of directors of
the Corporation takes action by written consent without a meeting, the
Corporation will promptly provide notice of such action to C&W.
3. Delivery of Financial Statements. At all times when Preferred Shares
are outstanding and held by any member of the Investment Syndicate, the
Corporation shall deliver to each such member of the Investment Syndicate:
A. Monthly Financial Statements. Within forty-five days after the
end of each fiscal month, including the final month for each full fiscal
year, consolidating balance sheets of the Corporation as of the last day
of such period, and consolidating statements of income for each such
month, together with comparative figures for the corresponding period in
the preceding fiscal year (beginning with the year 2000), each such
statement to be prepared by the Corporation and certified by the president
or chief financial officer of the Corporation as being true, correct, and
accurate in all respects to the best of such person's knowledge and
belief, and as having been prepared in accordance with generally accepted
accounting principles on a basis consistent with the most recent prior
audited year end consolidated financial statements of the Corporation. On
a quarterly basis, such financials as described above will be prepared and
provided to each member of the Investment Syndicate both on a consolidated
and consolidating basis.
B. Year-end Financial Statements. Within ninety days after the end
of each fiscal year, a balance sheet of the Corporation as of the last
date of each such fiscal year, and statements of income; stockholders'
equity; and cash flows for each such fiscal year, together with
comparative figures for the preceding fiscal year (beginning with the year
2000), each prepared on a consolidated and consolidating basis, in
accordance with
<PAGE>
generally accepted accounting principles and accompanied by an unqualified
audit report issued by a certified public accountant or firm of
independent certified public accountants acceptable to the Investment
Syndicate.
C. Additional Information. Such additional reports or information
concerning the Corporation as a member of the Investment Syndicate may
reasonably request, shall be prepared on a basis consistent with those
statements specified in A and B above.
4. Price Protection.
A. Issuance of Additional Preferred Shares. In the event the
Corporation sells shares of its common stock or common stock equivalents
(i.e., securities convertible into common stock) at an effective price per
common share of less than $3.00 per share (such lesser per share amount
referred to as the "Adjusted Per Share Amount"), the Corporation shall
issue to each member of the Investment Syndicate such additional shares of
Series B Preferred Stock equal to the aggregate dollar amount of the
investment of such party divided by the Adjusted Per Share Amount less the
number of Preferred Shares already issued to such party.
B. Adjustment for Recapitalizations. In the event of the outstanding
shares of common stock of the Corporation are changed into a different
number of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, conversion, recapitalization, split (but
not a reverse split), or exchange of shares prior to the termination of
this covenant, the Corporation's obligation to issue additional Preferred
Shares pursuant to this subparagraph shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification, conversion,
recapitalization, split, combination or exchange of shares.
C. Termination of Covenant. This covenant shall terminate on the
closing of the Corporation's underwritten initial public offering of its
common stock and shall not apply to any such registered offering.
5. Future Financings. Until the Corporation has completed its initial
public offering of its common stock, the members of the Investment Syndicate
shall have a preferential right, on the terms and subject to the conditions set
forth in this paragraph, to purchase for their account any securities of the
Corporation that the Corporation proposes to sell for cash in any public
offering or private placement; provided, however, that such right shall not
apply to the current offering by the Corporation of up to 2,000,000 shares of
Series B Convertible Preferred Stock at $3.00 per share. The Corporation will
consult with the Investment Syndicate regarding any such offering or placement
and will offer the members of the Investment Syndicate the opportunity, on terms
not more favorable to the Corporation than it can secure elsewhere, to purchase
any such securities. If any member of the Investment Syndicate fails to accept
in writing such proposal made by the Corporation within 30 days after receipt of
a notice containing such proposal, then such member of the Investment Syndicate
shall have no further claim or right with respect to the proposal contained in
such notice. If, thereafter, such proposal is modified in any material respect,
the Corporation shall again consult with all members of the
<PAGE>
Investment Syndicate in connection with such modification and shall in all
respects have the same obligations and adopt the same procedures with respect to
such proposal as are provided hereinabove respecting the original proposal. The
rights and obligations of the Investments Syndicate in this paragraph
specifically do not apply to the offer and sale of securities to employees,
officers, or directors or to the exercise of options. The rights of the members
of the Investment Syndicate to purchase such securities shall entitle each
member to purchase its pro rata part (determined by dividing the number of
Preferred Shares held by the member by the number of Preferred Shares held by
all of the Investment Syndicate) of the securities being offered, provided,
however, that if a member of the Investment Syndicate does not purchase all of
its pro rata part, then the other members of the Investment Syndicate may
purchase such securities.
6. Costs. Paragraph 11F of the Agreement of Understanding shall be amended
by replacing Ash Capital and Ash with Investment Syndicate, such that the costs
and expenses, including attorneys' fees, of each member of the Investment
Syndicate shall by paid by the Corporation.
7. Continuation of Effectiveness. Except as amended by the First
Amendment, all other provisions of the
Agreement of Understanding are in full force and effect.
ROOMSYSTEMS, INC.
By: /s/
------------------------------------
Its: CEO
------------------------------------
390 North 3050 East
St. George, Utah 84790
ASH CAPITAL, LLC
By Providence Management, LLC, Manager
By: /s/
------------------------------------
Its: MANAGER
------------------------------------
1400 S. Foothill Drive Suite B25
Salt Lake City, Utah 84108
C&W/RSI PARTNERS, LLC
By: /s/
------------------------------------
Its: MANAGER
------------------------------------
1245 E. Brickyard Rd. No. 350
Salt Lake City, Utah 84106
<PAGE>
SKM INVESTMENTS, LLC
By: /s/
------------------------------------
Its: MANAGER
------------------------------------
1400 S. Foothill Drive Suite B25
Salt Lake City, Utah 84108
THUNDER MOUNTAIN PROPERTIES, LLC
By: /s/
------------------------------------
Its: MANAGING MEMBER
------------------------------------
981 E. 280 N.
Orem, Utah 84097
<PAGE>
Exhibit 10.11
PROMISSORY NOTE REPURCHASE AGREEMENT
THIS PROMISSORY NOTE REPURCHASE AGREEMENT (this "Agreement"), made as of
the 1st day of September 1999, is by and between Steven L.. Sunyich ("Sunyich")
and RoomSystems, Inc., a Nevada corporation (the "Corporation").
R E C I T A L S:
WHEREAS, between May, 1998 and August, 1999, Sunyich loaned $205,209 in
principal to the Corporation and received from the Corporation that certain
Promissory Note (the "Note"), a copy of which is attached here to as Exhibit "A"
and incorporated herein by reference, which Note bears interest thereon at the
rate of eighteen percent (18%) per annum, from the date of execution; and
WHEREAS, in addition to the interest due under the Note, the Corporation
promised to deliver to Sunyich, monthly, 100 shares of its Common Stock for
every $1,000 loaned to the Corporation; and
WHEREAS, as of the date of this Agreement, Sunyich has accrued 138,611
shares of the Corporation's Common Stock (the "Accrued Shares"); and
WHEREAS, Sunyich is entitled to continue to accrue shares of the
Corporation's Common Stock until the Note is paid in full (the "Accrual
Obligation"); and
WHEREAS, the Corporation is unable to pay the Note and the Note is now in
default; and
WHEREAS, the principal amount, including accrued but unpaid interest, now
due, owing and unpaid under the Note is $217,303.41 (the "Obligation"); and
WHEREAS, the Corporation has offered to Sunyich the opportunity to retain
the Accrued Shares and convert (the "Conversion") the Obligation into Series B
Convertible Preferred Stock of the Corporation (the "Preferred Stock"); and
WHEREAS, Sunyich desires to convert the Obligation into the Preferred
Stock and retain the Accrued Shares; and
WHEREAS, the parties intend to set forth herein the terms and conditions
relating to the Conversion and recite any additional terms and conditions
relating thereto.
NOW THEREFORE, in consideration of the monetary consideration herein
recited, the mutual promises herein contained and subject to the fulfillment of
he conditions set forth herein, the parties agree as follows:
ARTICLE I
CONVERSION OF THE OBLIGATION
Sections 1.1 Conversion of the Obligation. On the terms, and subject to
the conditions set forth herein, Sunyich hereby converts the Obligation into the
Preferred Stock on
<PAGE>
the same terms and conditions offered to all investors and noteholders of the
Corporation purchasing the preferred Stock. Sunyich agrees to complete a
Subscription Agreement relative to the Conversion and remit the same to the
Corporation.
Sections 1.2 Retention of the Accrued Shares. Sunyich shall be entitled to
retain the Accrued Shares.
ARETICLE II
THE ACCRUAL OBLIGATION
Section 2.1 The Conversion to Common Stock. The Corporation has
represented to Sunyich that each holder of the Preferred Stock shall
automatically, upon the earlier of (A) the effective date of the Corporation's
Initial Public Offering ("IPO"); or (B) June 30, 2000; and upon surrender of all
certificates representing ownership of Preferred Shares, convert all of such
holder's Preferred Stock into fully paid and non-assessable Common Stock (the
"Common Stock") of the Corporation, at the rate of the lesser of $3.00 per share
of fifty percent (50%) of the IPO price per share (the "Conversion Price"); or
in other words, the Preferred Stock shall be converted into the Common Stock on
a 1:1 basis, provided that the IPO price (the "IPO Price") is $6.00 per share.
If the IPO Price is less than $6.00 per share, the Conversion Price shall be the
IPO Price divided by 2.
Section 2.2 IPO. If the Corporation has filed a registration statement for
an IPO by March 31, 2000, but the same is not effective by June 30, 2000
(because of conditions and circumstances outside the control of the
Corporation), the Corporation shall have ninety (90) days to complete the IPO.
If the IPO is not completed by September 28, 2000, each holder of the Preferred
Stock, including Sunyich, shall have the option to convert such shares into the
Common Stock or remain a holder of the Preferred Stock. At any time after
September 28, 2000, if the Corporation has not completed the IPO, the conversion
of each share of preferred Stock shall be converted into one and one-half (1.5)
shares of Common Stock (the "Conversion Shares").
Section 2.3 The Additional Accrual Obligation. As set forth herein,
Sunyich is entitled to the Accrual Obligation. Sunyich agrees to waive,
renounce, relinquish and surrender the Accrual Obligation on the following
condition: that the Corporation has fully funded the IPO on or before September
28, 2000 (the "Accrual Condition"). If the Accrual Condition is not met, the
Corporation shall remit, in addition to the Conversion Shares, to Sunyich on
September 29, 2000, two (2) shares of its Common Stock for each dollar of the
Obligation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SUNYICH
Section 3.1 Representations and Warranties of Sunyich. Sunyich hereby
represents and warrants as follows:
A. Ownership of the Note. That Sunyich is the owner of good and
marketable title to the Note and the same is free and clear of all liens, debts,
security interests, adverse claims or obligations, except as otherwise
disclosed.
B. Binding Agreement. That upon execution and delivery hereof and at
the execution of this Agreement and any agreements contemplated herein, all of
such shall be legal, valid and binding obligations of Sunyich and shall be
enforceable against Sunyich in accordance with their respective terms.
<PAGE>
C. Other Agreements. That except as otherwise herein provided, the
execution and delivery of this Agreement and the consummation of the
transactions provided for herein will not result in a breach of any terms or
provision of, or constitute a default under any other agreement or instrument to
which Sunyich is a party or by which Sunyich is bound, which would affect the
Note or prevent or impair the consummation of the Conversion.
D. Third Party Approvals. Except as otherwise herein set forth, no
consents or approvals of any third party or parties are required prior to the
execution, delivery and performance of this Agreement and the other documents
referred to herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE CORPORAITON
Section 4.1 Representations and Warranties of the Corporation. The
Corporation hereby represents and warrants as follows:
A. Binding Agreement. That upon execution and delivery hereof and at
the execution of this Agreement and any agreements contemplated herein, all of
such shall be legal, valid and binding obligations of the Corporation and shall
be enforceable against the Corporation in accordance with their respective
terms.
B. Other Agreements. That except as otherwise herein provided, the
execution and delivery of this Agreement and the consummation of the
transactions provided for herein will not result in a breach of any terms or
provision of, or constitute a default under any other agreement or instrument to
which the Corporation is a party or by which the Corporation is bound, which
would affect the Note or prevent or impair the consummation of the Conversion.
C. Third Party Approvals. Except as otherwise herein set forth, no
consents or approvals of any third party or parties are required prior to the
execution, delivery and performance of this Agreement and the other documents
referred to herein.
D. Obligations under the Note. The Note constitutes a valid and
binding obligation of the Corporation, enforceable against the Corporation in
accordance with its terms. As of the date hereof, the Obligation constitutes the
full amount owing by the Corporation to Sunyich under the Note.
ARTICLE V
CONDUCT OF THE CONPORATION'S BUSINESS
Section 5.1 Conduct of the Corporation's Business. The Corporation agrees
that, pending the execution of this Agreement and during term hereof, that the
business of the Corporation shall be conducted only in the ordinary course and
substantially in accordance with its prior business practices.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1 Miscellaneous Provisions. The following Miscellaneous
Provisions are an integral part of this Agreement.
<PAGE>
A. Waiver of Breach. The waiver by any party of breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by such party.
B. Assignment. Neither party may assign any right or obligation
hereunder without the express written consent of the other party.
C. Entire Agreement. This Agreement contains the entire
understanding of the parties. It may not be changed orally but only by an
Agreement in writing signed by the party against an enforcement of any waiver,
change, modification, extension or discharge as sought.
D. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Nevada.
E. Notices. Any notice required or desired to be given under this
Agreement shall be deemed given if in writing sent by certified mail to the
parties at each party's last know address.
F. Attorneys' Fees. Should any party seek the enforcement of any
term of this Agreement, the prevailing party thereunder shall be entitled to
attorneys' fees and costs for the enforcement of such term or provision.
G. Section Headings. The section headings in this Agreement are
inserted for convenience only and shall not be deemed to constitute a part of
this Agreement.
H. Counterparts. This Agreement may be signed in two or more
counterparts, all of which shall be deemed to be one and the same agreement.
This Agreement shall become a binding obligation upon execution and delivery of
this Agreement of counterparts hereof by each of the parties hereto.
Effective Date. The effective date of this Agreement is September
1, 1999.
ROOMSYSTEMS, INC.
BY: /s/ /s/
----------------------------- -----------------------------
ITS: Chief Financial Officer STEVEN L. SUNYICH
<PAGE>
Exhibit 10.12
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of September
28,1999, is made between RoomSystems, Inc., a Nevada corporation
("RoomSystems"), RSi BRE, Inc., a Nevada corporation (the "Company"), and
DONNELLY PREHN ("Indemnitee")
R E C I T A L S :
A. The Company is a wholly-owned subsidiary of RoomSystems.
B. Indemnitee is a director of the Company and in such capacity is
performing valuable services for the Company.
C. The Company and Indemnitee further recognize the substantial increase
in litigation, subjecting directors and officers to expensive litigation risks
at the same time that such liability insurance has been severely limited.
D. The Company's Articles of Incorporation ("Articles") and Bylaws
"Bylaws") provide for indemnification of the officers, directors, agents and
employees of the Company to the full extent permitted by the Nevada Private
Corporation Acts (the "Statute").
E. The Articles and Bylaws and the Statute specifically provide that they
are not exclusive, and thereby contemplate that contracts may be entered into
between the Company and its directors and officers with respect to
indemnification of such directors and officers.
A G R E E M E N T:
In consideration of the Recitals above, the mutual covenants and
agreements herein contained, and Indemnitee's continued service as a director of
the Company after the date hereof, the parties to this Agreement agree as
follows:
1. Indemnification of Indemnitee
1.1 Scope. RoomSystems and the Company, jointly and severally, agree
to hold harmless and indemnify Indemnitee to the full extent provided under the
provisions of the Company's Articles and Bylaws, and to the full extent
permitted by law, notwithstanding that the basis for such indemnification is not
specifically enumerated in this Agreement, the Company's Articles, the Bylaws,
any statute or otherwise. In the event of any change, after the date of this
Agreement, in any applicable law, statute or rule regarding the right of a
Nevada corporation to indemnify a member of its board of directors or an
officer, such change, to the extent that it would expand Indemnitee's rights
hereunder, shall be included within Indemnitee's rights and RoomSystems' and the
Company's obligations hereunder, and, to the extent that it would narrow
Indemnitee's rights or RoomSystems' or the Company's obligations hereunder,
shall not affect or limit the scope of this Agreement; provided, however, that
in no event shall any part of this Agreement be construed so as to require
indemnification when such indemnification is not permitted by then applicable
law.
<PAGE>
1.2 Nonexclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles, the Bylaws, any agreement, any vote of
shareholders or disinterested directors, the Statute, or otherwise, whether as
to action in Indemnitee's official capacity or otherwise.
1.3 Included Coverage. If Indemnitee was or is made a party, or is
threatened to be made a party to, or is otherwise involved (including, without
limitation, as a witness) in any Proceeding (as defined below), RoomSystems and
the Company, jointly and severally, shall hold harmless and indemnify Indemnitee
from and against any and all losses, claims, damages (compensatory, exemplary,
punitive or otherwise), liabilities or expenses, including, without limitation,
attorneys' fees, costs, judgments, fines, ERISA excise taxes or penalties,
witness fees, amounts paid in settlement and other expenses incurred in
connection with the investigation, defense, settlement or approval of such
Proceeding (collectively, "Damages").
1.4 Definition of Proceeding. For purposes of this Agreement,
"Proceeding" shall mean any completed, actual, pending or threatened action,
suit, claim, hearing or proceeding, whether civil, criminal, arbitrative,
administrative, investigative or pursuant to any alternative dispute resolution
mechanism (including an action by or in the right of RoomSystems or the Company)
and whether formal or informal, in which Indemnitee is, was or becomes involved
by reason of the fact that Indemnitee is or was a director, officer, employee or
agent of the Company or that, being or having been such a director, officer,
employee or agent, Indemnitee is or was serving at the request of RoomSystems or
the Company as a director, officer, employee, trustee or agent of another
corporation or of a partnership, limited liability company, joint venture, trust
or other enterprise (collectively, a "Related Company"), including service with
respect to an employee benefit plan, whether the basis of such proceeding is
alleged action (or inaction) by Indemnitee in an official capacity as a
director, officer, employee, trustee or agent or in any other capacity while
serving as a director, officer, employee, trustee or agent.
1.5 Determination of Entitlement. In the event that a determination
of Indemnitee's entitlement to indemnification is required pursuant to the
Statute or a successor statute or pursuant to other applicable law, the
appropriate decision-maker shall make such determination; provided, however,
that Indemnitee shall initially be presumed in all cases to be entitled to
indemnification, that Indemnitee may establish a conclusive presumption of any
fact necessary to such a determination by delivering to RoomSystems and the
Company a declaration made under penalty of perjury that such fact is true and
that, unless the Company shall deliver to Indemnitee written notice of a
determination that Indemnitee is not entitled to indemnification within twenty
(20) calendar days after the Company's receipt of Indemnitee's initial written
request for indemnification, such determination shall conclusively be deemed to
have been made in favor of RoomSystems' and the Company's provision of
indemnification, and that the RoomSystems and the Company hereby agree not to
assert otherwise.
1.6 Contribution. If the indemnification provided under Section 1.1
is unavailable by reason of a court decision, based on grounds other than any of
those set forth in unavailable by reason of a court decision, based on grounds
other than any of those set forth in paragraphs (b) through (d) of Section 4.1,
then, in respect of any Proceeding in which the Company is jointly liable with
Indemnitee (or would be if joined in such Proceeding), RoomSystems and/or the
Company shall contribute to the amount of Damages (including
<PAGE>
attorneys' fees) actually and reasonably incurred and paid or payable by
Indemnitee in such proportion as is appropriate to reflect (i) the relative
benefits received by the Company on the one hand and Indemnitee on the other
hand from the transaction from which such Proceeding arose, and (ii) the
relative fault of the Company on the one hand and of Indemnitee on the other
hand in connection with the events that resulted in such Damages, as well as any
other relevant equitable considerations. The relative fault of the Company on
the one hand and of Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such Damages. RoomSystems and the Company agree that it would not
be just and equitable if contribution pursuant to this Section 1.6 were
determined by pro rata allocation or any other method of allocation that does
not take account of the foregoing equitable considerations.
1.7 Survival. The indemnification and contribution provided under
this Agreement shall apply to any and all Proceedings, notwithstanding that
Indemnitee has ceased to serve the Company or a Related Company and shall
continue so long as Indemnitee shall be subject to any possible Proceeding,
whether civil, criminal or investigative, by reason of the fact that Indemnitee
was a director of the Company or serving in any other capacity referred to in
Section 1.4 of this Agreement.
2. Expense Advances.
2.1 Generally. The right to indemnification of Damages conferred by
Section 1 shall include the right to have RoomSystems and the Company pay
Indemnitee's expenses in any Proceeding as such expenses are incurred and in
advance of such Proceeding's final disposition (such right, an "Expense
Advance").
2.2 Conditions to Expense Advance. RoomSystems' and the Company's
obligation to provide an Expense Advance is subject to the following conditions:
(a) Undertaking. If the Proceeding arose in connection with
Indemnitee's service as a director of the Company (and not in any
other capacity in which Indemnitee rendered service, including
service to any Related Company), then Indemnitee or Indemnitee's
representative shall have executed and delivered to the Company an
undertaking, which need not be secured and shall be accepted without
reference to Indemnitee's financial ability to make repayment, by or
on behalf of Indemnitee to repay all Expense Advances if it shall
ultimately be determined by a final, unappealable decision rendered
by a court having jurisdiction over the parties that Indemnitee is
not entitled to be indemnified under this Agreement.
(b) Cooperation. Indemnitee shall have RoomSystems and the
Company such information and cooperation as they may reasonably
request and shall be within Indemnitee's legal power to provide.
(c) Affirmation. Indemnitee shall furnish, upon request by
RoomSystems or the Company and if required under applicable law, a
written
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affirmation of Indemnitee's good faith belief that any applicable
standards of conduct have been met by Indemnitee.
3. Procedures for Enforcement.
3.1 Enforcement. In the event that any claim for indemnification,
whether an Expense Advance or otherwise, is made hereunder and is not paid in
full within thirty (30) calendar days after written notice of such claim is
delivered to RoomSystems and the Company, Indemnitee may, but need not, at any
time thereafter bring suit against RoomSystems and the Company to recover the
unpaid amount of the claim (an "Enforcement Action").
3.2 Presumptions in Enforcement Action. In any Enforcement Action,
the following presumptions (and limitations on presumptions) shall apply:
(a) RoomSystems and the Company expressly affirm and agree
that that they have entered into this Agreement and assumed the
obligations imposed on them hereunder to induce Indemnitee to
continue as a director of the Company; and
(b) Neither (i) the failure of the Company (including the
Company's Board of Directors, independent or special legal counsel
or the Company's shareholders) to have made a determination prior to
the commencement of the Enforcement Action that indemnification of
the Indemnitee is proper in the circumstances, nor (ii) an actual
determination by the Company, its Board of Directors, independent or
special legal counsel or shareholders that Indemnitee is not
entitled to indemnification shall be a defense to the Enforcement
Action or create a presumption that Indemnitee is not entitled to
indemnification hereunder.
3.3 Attorneys' Fees and Expenses for Enforcement Action. In the
event Indemnitee is required to bring an Enforcement Action, RoomSystems and/or
the Company shall pay all of Indemnitee's fees and expenses in bringing and
pursuing the Enforcement Action (including attorneys' fees at any stage,
including on appeal); provided, however, that neither RoomSystems nor the
Company shall be required to provided such payment for such attorneys' fees or
expenses if a court of competent jurisdiction determines that each of the
material assertions made by Indemnitee in such Enforcement Action was not made
in good faith.
4. Limitations on Indemnity; Mutual Acknowledgment.
4.1 Limitation on Indemnity. No indemnity pursuant to this Agreement
shall be provided by RoomSystems or the Company:
(a) For Damages that have been paid directly to Indemnitee by
an insurance carrier under a policy of insurance maintained by the
Company or by RoomSystems on behalf of the Company;
(b) With respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication
that such remuneration was in violation of law;
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(c) On account of Indemnitee's conduct which is finally
adjudged by a court having jurisdiction in the matter to have been
intentional misconduct, a knowing violation of the Statute or any
successor provisions of the Statute, or other applicable law, or a
transaction from which Indemnitee derived an improper personal
benefit; or
(d) If a final decision by a court having jurisdiction in the
matter with no further right of appeal shall determine that such
indemnification is not lawful.
4.2 Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by RoomSystems or the Company for
some or a portion of any Damages in connection with a Proceeding, but not,
however, for the total amount thereof, RoomSystems and the Company shall
nevertheless indemnify Indemnitee for the portion of such Damages to which
Indemnitee is entitled.
4.3 Mutual Acknowledgment. RoomSystems and the Company and
Indemnitee acknowledge that, in certain instances, federal law or public policy
may override applicable state law and prohibit RoomSystems and the Company from
indemnifying Indemnitee under this Agreement or otherwise. For example, parties
acknowledge that the SEC has taken the position that indemnification is not
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that RoomSystems may be
required in the future to undertake with the SEC to submit the question of
indemnification to a court in certain circumstances for a determination of its
right under public policy to indemnify Indemnitee.
5. Notification and Defense of Claim.
5.1 Notification. Promptly after receipt by Indemnitee of notice of
the commencement of any Proceeding, Indemnitee shall, if a claim in respect
thereof is to be made against RoomSystems and the Company under this Agreement,
notify RoomSystems and the Company of the commencement thereof; but the omission
so to notify RoomSystems and/or the Company will not, however, relieve
RoomSystems and the Company from any liability which they may have to Indemnitee
under this Agreement unless and only to the extent that such omission can be
shown to have prejudiced RoomSystems' or the Company's ability to defend the
Proceeding.
5.2 Insurance. If, at the time the receipt of notice of a claim
pursuant to Section 5.1, RoomSystems or the Company has director and officer
liability insurance in effect, RoomSystems or the Company, as applicable, shall
give prompt notice of the commencement of such proceeding to the insurers in
accordance with the procedures set forth in the respective policies. RoomSystems
and the Company shall take all necessary or desirable action to cause such
insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of
such Proceeding in accordance with the terms of such policies.
5.3 Defense of Claim. With respect to any such Proceeding as to
which Indemnitee notifies RoomSystems and the Company of the commencement
thereof:
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(a) RoomSystems and the Company may participate therein at
their own expense;
(b) RoomSystems and/or the Company may assume the defense
thereof, with counsel satisfactory to Indemnitee. After notice from
RoomSystems or the Company to Indemnitee of its/their election so to
assume the defense thereof, neither RoomSystems nor the Company
shall be liable to Indemnitee under this Agreement for any legal or
other expenses (other than reasonable costs of investigation)
subsequently incurred by Indemnitee in connection with the defense
thereof unless (i) the employment of counsel by Indemnitee has been
authorized by RoomSystems or the Company, (ii) Indemnitee shall have
reasonably concluded that there may be a conflict of interest
between RoomSystems and/or the Company (or any other person or
persons included in the joint defense) and Indemnitee in the conduct
of the defense of such action, (iii) neither RoomSystems nor the
Company shall have, in fact, employed counsel to assume the defense
of such action, in each of which cases the fees and expenses of
counsel shall be at RoomSystems' and the Company's expense, or (iv)
either RoomSystems or the Company is not financially or legally able
to perform its indemnification obligations. Neither RoomSystems nor
the Company shall be entitled to assume the defense of any
proceeding brought by or on behalf of RoomSystems and/or the Company
or as to which Indemnitee shall have reasonably made the conclusion
provided for in clause (ii) or (iv) above;
(c) Neither RoomSystems nor the Company shall be liable to
indemnify Indemnitee under this Agreement for any amounts paid in
settlement of any Proceeding effected without RoomSystems' and the
Company's written consent;
(d) Neither RoomSystems nor the Company shall settle any
action or claim in any manner that would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent; and
(e) Neither RoomSystems, the Company nor Indemnitee will
unreasonably withhold its or his consent to any proposed settlement.
6. Severability.
Nothing in this Agreement is intended to require or shall be
construed as requiring RoomSystems or the Company to do or to fail to do any act
in violation of applicable law. RoomSystems' and the Company's inability,
pursuant to court order, to perform their obligations under this Agreement shall
not constitute a breach of this Agreement. The provisions of this Agreement
shall be severable, as provided in this Section 6. If this Agreement or any
portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, then RoomSystems and the Company shall nevertheless indemnify or
make contribution to Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
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7. Governing Law; Attorneys' Fees.
7.1 Governing Law and Venue. This Agreement shall be governed by,
construed, interpreted and applied in accordance with the laws of the State of
Idaho, without giving effect to any conflict of laws rules that would refer the
matter to the laws of another jurisdiction. In the event any action or dispute
is initiated hereunder, each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the courts of the State of Idaho in Ada County, for
the purposes of any action arising out of this Agreement, or the subject matter
hereof or thereof. To the extent permitted by applicable law, each party hereby
waives and agrees not to assert, by way of motion, as a defense or otherwise in
any such action, any claim (i) that it is not subject to the jurisdiction of the
above-named courts, (ii) that the action is brought in an inconvenient forum,
(iii) that it is immune from any legal process with respect to itself or its
property, (iv) that the venue of the suit, action or proceeding is improper or
(v) that this Agreement, or the subject matter hereof, may n ot be enforced in
or by such courts.
7.2 Attorneys' Fees. The prevailing party in any action or
proceeding relating to this Agreement shall be entitled to recover from the
non-prevailing parties, reasonable attorneys' fees and other costs incurred with
or without trial, in bankruptcy or on appeal, in addition to any other relief to
which such prevailing party may be entitled.
8. Binding Effect.
This Agreement shall be binding on Indemnitee and on RoomSystems and
the Company and its successors and assigns (including any transferee of all or
substantially all of their assets and any successor by merger or otherwise by
operation of law), and shall inure to the benefit of Indemnitee and Indemnitee's
heirs, personal representatives and assigns and to the benefit of RoomSystems
and the Company and their successors and assigns. Neither RoomSystems nor the
Company shall effect any merger, consolidation, sale of all or substantially all
of its assets or other reorganization in which it is not the surviving entity,
unless the surviving entity agrees in writing to assure all of RoomSystems' and
the Company's obligations under this Agreement.
9. Entire Agreement.
This Agreement is the entire agreement of the parties regarding its
subject matter and supersedes all prior written or oral communications or
agreements.
10. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
11. Amendment and Termination.
No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by all parties hereto.
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12. Waivers.
No waiver of any breach or default shall be considered valid unless
in writing, and no such waiver shall be deemed a waiver of any subsequent breach
or default.
13. Notices.
Any notice or demand required or permitted to be given under the
terms of this Agreement shall be deemed to have been duly given or made if given
by any of the following methods:
(a) Deposited in the United States mail, in a sealed envelope, postage prepaid,
by registered or certified mail, return receipt requested, respectively
addressed as follows:
To RoomSystems and
the Company: RoomSystems, Inc.
Attention: Derek K. Ellis,
Chief Financial Officer
390 North 3050 East
St. George, Utah 84790
Telephone: 435/688-3605
Fax number: 435-628-8611
If to Indemnitee: Donnelly Prehn
412 E. ParkCenter Blvd., Suite 300
Boise, Idaho 837006
Telephone: 208/333-2072
Fax Number: 108/343-1145
With a copy to: AMRESCO Leasing Corporation
Attention: William C. Cole, Esq.
412 E. Park Center Blvd.,
Suite 300
Boise, Idaho 83702
Telephone: 208/333-2000
Fax number: 208/333-2050
(b) Hand-delivered or sent to the above address via an established
national overnight delivery service (such as Federal Express), charges prepaid,
or
(c) Sent via any electronic communications method provided the
sender obtains written confirmation of receipt of the communication by the
electronic communication equipment at the office of the address listed above.
Notices delivered by mail shall be deemed given five (5) Business Days
after being deposited in the United States mail, return receipt requested.
Notices delivered by hand, by facsimile, or by a nationally recognized private
carrier shall be deemed given on the first
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Business Day following receipt; provided, however, that a notice delivered by
facsimile shall only be effective if such notice is also delivered by hand, or
deposited in the United States mail, postage prepaid, registered or certified
mail, on or before two (2) Business Days after it is delivered by facsimile. Any
party may hereinafter designate other addresses to which notice may be sent,
upon written notice sent to the other parties at the address above designated,
or subsequently designated in accordance herewith.
14. Directors' and Officers' Insurance.
14.1 Covenant of Company. The Company hereby covenants and agrees
that, subject to the provisions of Section 14.2 hereof, the Company shall, from
and after the date hereof, maintain directors' and officers insurance ("D&O
Insurance") in full force and effect so long as Indemnitee continues to serve as
a director of the Company and thereafter so long as Indemnitee shall be subject
to any possible Proceeding.
14.2 Coverage. In all D&O Insurance policies, Indemnitee shall be
named as an insured in such a manner as to provide Indemnitee the same rights
and benefits, subject to the same limitations, as are accorded to RoomSystems'
or the Company's directors or officers most favorably insured by such policy.
15. Specific Performance.
The parties agree herein that a monetary remedy for breach of this
Agreement, at some later date, will be inadequate, impracticable and difficult
of proof, and further agree that such breach would cause Indemnitee irreparable
harm. Accordingly, RoomSystems, the Company and Indemnitee agree that Indemnitee
shall be entitled to temporary and permanent injunctive relief to enforce this
Agreement without the necessity of proving actual damages or irreparable harm.
RoomSystems, the Company and Indemnitee further agree that Indemnitee shall be
entitled to such injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, without the necessity of
posting bond or other undertaking in connection therewith. Any such requirement
of bond or undertaking is hereby waived by RoomSystems and the Company, and
RoomSystems and the Company acknowledge that in the absence of such a waiver, a
bond or undertaking may be required by the court.
16. Subrogation.
In the event of payment under this Agreement, RoomSystems and/or the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee., who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable
RoomSystems and/or the Company effectively to bring suit to enforce such rights.
IN WITNESS WHEREOF, the parties hereto have caused this Indemnity
Agreement to be duly executed as of the day and year first set forth above.
COMPANY:
RSi BRE, Inc.
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By: /s/ Steven L. Sunyich
--------------------------------------
Its: CEO
--------------------------------------
ROOMSYSTEMS:
ROOMSYSTEMS, INC.
By: /s/ Steven L. Sunyich
--------------------------------------
Its: CEO
--------------------------------------
INDEMNITEE:
/s/ Donnelly Prehn
-----------------------------------------------
Donnelly Prehn
<PAGE>
Exhibit 10.13
EQUIPMENT TRANSFER AGREEMENT
THIS EQUIPMENT TRANSFER AGREEMENT ("Agreement") is entered into effective
as of the 28th day of September, 1999, by and among ROOMSYSTEMS, INC., a Nevada
corporation ("RSi"), ROOMSYSTEMS INTERNATIONAL CORPORATION, a Nevada
corporation, and a wholly-owned subsidiary of RSi, d/b/a RoomSystems
International Funding Corporation ("RIC"), and Rsi BRE, Inc., a Nevada
corporation and a wholly-owned subsidiary of Rsi ("RSi BRE") (RSi and RIC are
collectively referred to as "RoomSystems"), on the one hand; and RSG
INVESTMENTS, LLC, an Idaho limited liability company ("RSG"), on the other hand.
R E C I T A L S:
A. RSG and RoomSystems have entered into that certain Equipment Purchase
and Sale Agreement, dated as of July 17, 1998 ("Master Agreement"), as
supplemented and amended by (i) those certain letter agreements dated as of
February 18, 1999, and May 19, 1999 (the "Letter Agreements"). Capitalized terms
used but not defined herein shall have the meanings ascribed to such terms in
the Master Agreement and Letter Agreements, as applicable.
B. Pursuant to the Master Agreement, RSG purchased certain automated
refreshment centers (including related network computer systems and attached
automated room safes, if any) (the "Units"), and took an assignment of certain
related Hotel Revenue Sharing Lease Agreements (the "Revenue Sharing
Contracts").
C. RoomSystems has formed RSi BRE as a bankruptcy-remote entity for the
specific and sole purpose of purchasing the Units and taking an assignment of
the Revenue Sharing Contracts from RSG, all on the terms and conditions set
forth in this Agreement.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the premises, and the covenants and
conditions contained herein, the parties agree as follows:
1. SALE OF EQUIPMENT; ASSIGNMENT OF REVENUE SHARING CONTRACTS.
1.1 Sale and Transfer of Equipment.
At Closing (as defined in Section 4.1 hereof), RSG agrees to sell,
transfer and convey to RSi BRE, and RSi BRE agrees to purchase and acquire from
RSG, those Units identified in the Equipment Schedules attached to the Revenue
Sharing Contracts identified in EXHIBIT A hereto, together with all
replacements, parts, repairs, additions, attachments and accessories related
thereto (the "Equipment"). THE EQUIPMENT IS BEING SOLD "AS IS" AND "WITH ALL
FAULTS," AND RSG MAKES NO WARRANTIES WITH RESPECT TO THE EQUIPMENT, EXPRESSED OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, OR OTHER WARRANTIES THAT MIGHT ARISE FROM COURSE OF DEALING
OR CUSTOM OF TRADE.
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1.2 Assignment of Revenue Sharing Contracts.
At Closing, RSG shall assign to RSi BRE all of its right, title and
interest in, to and under the Revenue Sharing Contracts, together with all
Attachments thereto. RSG shall assign its rights and benefits in and to the
Revenue Sharing Contracts pursuant to an Assignment of Revenue Sharing Contracts
("Assignment"), a form of which is attached as EXHIBIT B hereto. RoomSystems
acknowledges that it has true and complete copies of all the Revenue Sharing
Contracts. THE REVENUE SHARING CONTRACTS ARE BEING TRANSFERRED AND ASSIGNED TO
RSi BRE "AS IS," AND RSG MAKES NO WARRANTIES WITH RESPECT TO THE REVENUE SHARING
CONTRACTS, EXPRESSED OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ENFORCEABILITY
OR WHETHER ANY PARTY IS IN DEFAULT THEREUNDER.
1.3 Substitution and Termination of Repurchase Obligation.
The sale and transfer of the Equipment and the Revenue Sharing Contracts
provided for in this Agreement, is in full substitution of, and shall operate to
automatically terminate as of the Closing Date, the Repurchase Obligation of
RoomSystems set forth in the Master Agreement.
1.4 Transfer and Termination of Pledge of RSi Stock.
In addition to termination of the Repurchase Obligation provided above,
the sale and transfer of the Equipment and the Revenue Sharing Contracts
provided for in this Agreement, shall operate to (i) transfer to the
shareholders of RSi all of RSG's ownership interest in the 51% of RSi's voting
common stock ("RSi Stock"), and (ii) terminate as of the Closing Date RSG's
pledge and security interest in the RSi Stock under that certain Stock Pledge
Agreement dated July 17, 1999. At Closing, RSG shall deliver, or cause to be
delivered, to RoomSystems, on behalf of the shareholders of RSi (other than
Royal Minson, who shall receive his certificate(s) directly from RSG), the stock
certificates representing such shares of RSi Stock, along with stock powers duly
endorsed for transfer, and a written acknowledgment of the termination of the
related pledge and security interest.
1.5 Related Agreements.
At Closing, the applicable parties shall execute and deliver in accordance
with Section 4.2, in each case as described and defined in this Agreement, the
Assignment, the Indemnification Agreement, the Note, the Security Agreement, the
Guaranty, the Financing Statements, the Escrow Agreement and the First Amendment
to Investor Rights Agreement (collectively, the "Related Agreements").
2. FORMATION AND OPERATION OF RSi BRE.
2.1 Articles of Incorporation.
RSi BRE has been formed under the laws of the State of Nevada, with the
filing of Articles of Incorporation ("Articles") with the Nevada Secretary of
State. A file-stamped copy of the Articles of Incorporation of RSi BRE is
attached as EXHIBIT C hereto. It is the intent of the parties that RSi BRE be a
"bankruptcy remote" entity, separate and apart from the liabilities
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and obligations of RoomSystems (except as specifically provided in the
Articles), and RoomSystems covenants and agrees to operate RSi BRE consistent
with such intent, in accordance with the restrictions and limitations set forth
in the Articles and in this Agreement.
2.2 Issuance of Shares.
The capitalization of RSi BRE consists of 100 shares of common voting
stock, no par value per share, of which 100 shares are issued and outstanding,
and held of record and beneficially by RSi as the sole shareholder of RSi BRE.
At Closing, RSi BRE shall have issued stock certificate no. 1 to RSi,
representing the aforementioned 100 shares of RSi BRE common voting stock (the
"RSi BRE Shares"), which such certificate shall be delivered to the Stock and
Contract Escrow Agent as defined in and pursuant to Section 3.4(d) of this
Agreement.
2.3 Capital Contributions.
(a) Cash Contributions. At Closing, or as soon thereafter as
possible, but in all events within the Initial Condition Subsequent Period (as
defined in Section 4.1(b) hereof), RSi, as the sole shareholder of RSi BRE,
shall cause the cash capital contributions described in this Section 2.3 to be
transferred from its current escrow account with US Bank National Association
(the "Escrow Agent"), specifically identified as Escrow Account Nos. 97236790,
97236791 and 97236792 (the "RSi Escrow") to the RSi BRE escrow (the "RSi BRE
Escrow"), which shall be identified in writing to RSG (and for purposes of this
Agreement shall be controlled by the Board of Directors of RSi BRE), as follows:
(i) RSi will direct the Escrow Agent, in writing, to make a
cash contribution to RSi BRE in the amount of $371,951 in immediately
available funds into the RSi BRE Escrow, to enable RSi BRE to satisfy its
obligations under Section 3.1(a) of this Agreement; and
(ii) RSi will direct the Escrow Agent, in writing, to make an
additional cash contribution to RSi BRE in immediately available funds
into the RSi BRE Escrow of the lesser of (i) $750,000, or (ii) $750,000
less a credit for prior assets purchased by or on behalf of RSi BRE, to be
agreed upon unanimously by the RSi BRE Board of Directors.
(b) Stock Contribution. At Closing, or as soon thereafter as
possible, but in all events within the Second Condition Subsequent Period (as
defined in Section 4.1(b) hereof), RSi will contribute to the capital of RSi BRE
the amount of 166,667 shares of RSi's Series B Preferred Stock (the "RSI
Shares"), to enable RSi BRE to satisfy its obligations under Section 3.1(b) of
this Agreement.
2.4 Use of Proceeds.
RSi BRE covenants and agrees to use the capital contributions from
RoomSystems described in Section 2.3 as follows: (i) to pay the Cash Portion of
the Purchase Price as described in Section 3.1(a); (ii) to pay the Stock Portion
of the Purchase Price as provided in Section 3.1(b); and (iii) the balance of
the cash contributions, as determined and approved by the unanimous vote of the
Board of Directors of RSi BRE; provided, however, it is acknowledged
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and agreed that the primary purpose of such funds is to manufacture, install and
render fully operational by May 1, 2000, at least 750 new Units in hotels to be
covered under future revenue sharing contracts ("New BRE Units"). RoomSystems
acknowledges and agrees that the New BRE Units, and their related revenue
sharing contracts ("New BRE Revenue Sharing Contracts"), shall be the sole and
exclusive property of RSi BRE. In the event a new revenue sharing contract is
entered into by RoomSystems on behalf of RSi BRE, RoomSystems promptly will
assign to RSi BRE all of its ownership rights in such contract. All
disbursements out of the RSi BRE Escrow will be determined by the unanimous
consent of the Board of Directors of RSi BRE.
2.5 Board of Directors.
The parties acknowledge that the Board of Directors of RSi BRE shall
consist of three persons: Derek Ellis, Donnelly Prehn, and an independent
director to be named by RoomSystems. In connection with the formation of RSi
BRE, (i) RSi BRE covenants and agrees to obtain directors' and officers'
insurance insuring the Board of Directors of RSi BRE on and after the Closing
Date, and (ii) at Closing, RoomSystems and RSi BRE will enter into that certain
Indemnification Agreement with Donnelly Prehn ("Indemnification Agreement"), in
the form attached as EXHIBIT D hereto. The insurance provided for in this
Section 2.5 may consist of an umbrella D&O policy maintained by RoomSystems, and
covering RSi BRE directors and officers.
2.6 Forbearance of RoomSystems.
In consideration of the transactions contemplated by this Agreement,
RoomSystems an RSi BRE hereby irrevocably covenant to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting or causing
to be commenced any lawsuit or proceeding of any kind against any Donnelly
Prehn, based upon any action or inaction of Donnelly Prehn as a director of RSi
BRE; provided, that any such action or inaction does not involve actual fraud or
an illegal criminal act on the part of Donnelly Prehn.
2.7 Operation of RSi BRE.
RoomSystems covenants, acknowledges and agrees that the following
operational limits, procedures, policies and limitations shall apply to RSi BRE,
and the ownership and operation of the New BRE Units and New BRE Revenue Sharing
Contracts:
(a) Substitution of Units. RoomSystems shall have the right to
substitute other mini-bar units owned by RoomSystems for the New BRE Units
consistent with RoomSystem's past practice relating to periodic "seasoning" of
its mini-bar units; provided, however, that any mini-bar units so substituted
shall have equivalent economic value to the New BRE Units, and such substitution
shall require the unanimous approval of the Board of Directors of RSi BRE.
(b) Treatment of Equipment and New BRE Units. In the event a Hotel
determines to deliver back to RSi BRE any Equipment or New BRE Units at the end
of the contract term for the related Revenue Sharing Contract or New BRE Revenue
Sharing Contract,
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as the case may be, such Equipment and New BRE Units shall be refurbished and
redeployed in a manner consistent with past practice and RoomSystem's treatment
of its other mini-bar units.
2.8 Back-up Servicer Data. Within ninety (90) days of the Closing Date,
RoomSystems shall cause all computer data necessary for the servicing and
maintenance of the Equipment and the New BRE Units to be installed in the RSG
computer system at its Boise, Idaho office, such that RSG can operate, if
necessary, as the servicer of the Equipment and New BRE Units.
2.9 Voting Agreement. By execution and delivery of this Agreement, RSi, as
the sole shareholder of RSi BRE, covenants and agrees as follows:
(a) Voting for Directors. At each election of directors, RSi shall
vote all of its 100 shares of RSi BRE common stock (the "RSi BRE Shares") for
the election as a member of RSi BRE's Board of Directors: Donnelly Prehn, or his
designee.
(b) Rights of Shareholder. Except as provided by this Section 2.9
and the Articles of Incorporation of RSi BRE, RSi shall exercise the full rights
of a shareholder with respect to the RSi BRE Shares.
3. CONSIDERATION AND SECURITY.
3.1 Purchase Price.
The consideration to be paid to RSG for the sale and transfer of the
Equipment and the Revenue Sharing Contracts to RSi BRE shall be One Million Six
Hundred Twenty-One Thousand Nine Hundred Fifty-One and no/100 Dollars
($1,621,951.00) (the "Purchase Price"), plus certain cash amounts described in
Section 3.2 below. The Purchase Price shall be paid as follows:
(a) Cash Portion of the Purchase Price. RSi BRE shall pay the sum of
Three Hundred Seventy-One Thousand Nine Hundred and Fifty-One and no/Dollars
($371,951) in immediately available funds (the "Cash Portion of the Purchase
Price").
(b) Stock Portion of the Purchase Price. RSi BRE shall irrevocably
transfer and deliver to RSG the 166,667 RSi Shares referenced in Section 2.3
above (the "Stock Portion of the Purchase Price"), free and clear of any liens,
claims, encumbrances or restrictions whatsoever (other than restrictions imposed
by Federal and state securities laws). The parties acknowledge that the
agreed-upon value of the Stock Portion of the Purchase Price is $500,000, or
approximately $3.00 per share.
(c) Promissory Note. The balance of the Purchase Price ($750,000)
will be represented by an Equipment Purchase Promissory Note (the "Note"), in
the form attached as EXHIBIT E hereto. ----
3.2 Additional Consideration.
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(a) Additional Consideration to RSG. As additional consideration for
the sale and transfer of the Equipment and the Revenue Sharing Contracts, RSG
shall receive the following:
(i) Payment Allocation Schedule. From and after the Closing
Date, RSG shall be entitled to receive an allocation of all Payments from
the Revenue Sharing Contracts and the New BRE Revenue Sharing Contracts in
accordance with the terms and conditions set forth on EXHIBIT F hereto
(the "Payment Allocation Schedule"). The parties acknowledge and agree
that the Payment Allocation Schedule shall operate as and be deemed an
amendment to the Lockbox Agreement, which shall remain in full force and
effect and, from and after the Closing Date, all monies received into the
Lockbox Account shall be distributed in accordance with the Payment
Allocation Schedule.
(ii) Reimbursement of Legal Expenses. At Closing, RoomSystems
shall reimburse RSG for its legal costs, fees and expenses incurred in
connection with the amendments to the Master Agreement, and the
preparation of this Agreement and the Related Agreements, during the
period from January 1, 1999 through the Closing Date. RSG shall provide
RoomSystems with invoice(s) from its outside counsel detailing the amount
of such costs, fees and expenses.
(iii) Sale of Equipment and New BRE Units. At the end of the
contract term of each of the existing Revenue Sharing Contracts and of any
New BRE Revenue Sharing Contracts, in the event the applicable Hotel
determines to purchase the Equipment or New BRE Units, as provided in the
related Revenue Sharing Contract or New BRE Revenue Sharing Contract, as
applicable, all of the revenue from such sale(s) shall be remitted
promptly to RSG.
(b) Additional Consideration to RoomSystems and RSi BRE. As additional
consideration for the transactions contemplated herein, RoomSystems and RSi BRE
shall receive the following:
(i) Lockbox Account. RSi shall retain all cash amounts as of
the Closing Date retained in the LockBox Account established pursuant to
the Lockbox Agreement between RoomSystems and RSG, dated as of April
30,1999, including the 11(cent) per Unit per day allocated to RoomSystems'
operating account for a tax and service and maintenance reserve for each
day a Unit is operational, as provided in the Lockbox Agreement. The
parties agree that the Lockbox Agreement (A) shall remain in full force
and effect, as modified by the Payment Allocation Schedule provided for in
Section 3.2(a)(i) above, and (B) shall apply to all revenues received from
the Equipment and New BRE Units and their related Revenue Sharing
Contracts and New BRE Revenue Sharing Contracts, as applicable.
(ii) Termination of Rights. The substitution and termination
of RoomSystems' Repurchase Obligation and the termination of all of RSG's
interest and right in the RSi Stock provided for in Section 1.3 and 1.4,
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respectively, shall be deemed by the parties to be consideration for the
transactions contemplated by this Agreement.
(iii) Cancellation of Warrants. As further consideration for
the transactions represented by this Agreement, all Warrants heretofore
granted to the principals of RSG shall be cancelled and terminated at
Closing, and shall thereafter be null and void and be of no further force
and effect. RSG shall cause the principals of RSG to execute and deliver
at Closing such acknowledgements of cancellation as RoomSystems shall
reasonably request.
3.4 Security.
(a) Grant of Pledge and Security Interest. As security for the
timely performance of all of RoomSystems' and/or RSi BRE's obligation under this
Agreement, the Note, and the Related Agreements (the "Secured Obligations"),
effective at Closing, RSi BRE and RoomSystems, as applicable, will grant to RSG,
until all of the Secured Obligations have been paid in full, the following:
(i) a first priority lien and security interest in the
Equipment, the Revenue Sharing Contracts and any New BRE Revenue Sharing
Contracts, and all other property and assets of RSi BRE (the
"Collateral"), pursuant to the terms and conditions of a Security
Agreement ("Security Agreement"), a form of which is attached as EXHIBIT G
to this Agreement; and
(ii) a pledge of all of the RSi BRE Shares owned by RSi,
pursuant to the terms of a Stock Pledge and Security Agreement ("Stock
Pledge Agreement"), a form of which is attached as EXHIBIT H to this
Agreement.
(b) RoomSystems Guaranty. At Closing, RoomSystems will enter into
that certain Continuing and Unconditional Guaranty ("Guaranty"), in the form of
EXHIBIT I hereto, pursuant to which RoomSystems will guarantee the payment and
performance of the Secured Obligations applicable to RSi BRE.
(c) UCC Financing Statements. At Closing, RSi BRE shall join with
RSG in executing appropriate UCC-1 financing statements for public filing,
representing RSG's security interest in the Collateral in Nevada and Idaho.
Simultaneously, RoomSystems will execute and deliver UCC-3 termination
statements, terminating its current security interest in the Equipment and
Revenue Sharing Contracts. Such UCC-1 and UCC-3 financing statements are
referred to herein collectively as the "Financing Statements." RoomSystems shall
pay all fees and other costs incurred in connection with the filing of the
Financing Statements.
(d) Delivery of Possession. At Closing, RSi BRE and RoomSystems, as
applicable, will deliver physical possession of the originally executed Revenue
Sharing Contracts and the certificate representing the RSi BRE Shares to Hawley
Troxell Ennis & Hawley LLP (the "Stock and Contract Escrow Agent"), pursuant to
the terms and conditions of that certain Escrow Agreement ("Escrow Agreement"),
in the form of EXHIBIT J hereto, to be entered into by the parties at Closing.
Originals of any New BRE Revenue Sharing Contracts entered into by
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RSi BRE, or by RoomSystems on behalf of RSi BRE, shall be promptly delivered to
the Stock and Contract Escrow Agent to be held as security under the terms of
the Escrow Agreement.
3.5 Investor Rights Agreement.
By execution and delivery of this Agreement, RoomSystems covenants,
acknowledges and agrees that, notwithstanding anything contained in this
Agreement or the cancellation of the Warrants provided above, the Investor
Rights Agreement, dated as of July 17, 1998, by and among RSi and the principals
of RSG shall remain in full force and effect and, at Closing, the parties shall
execute and deliver an amendment to such agreement (the "First Amendment to
Investor Rights Agreement"), in the form attached as EXHIBIT K hereto, providing
that all of the registration and other rights contained in such Agreement shall
apply to the Stock Portion of the Purchase Price to be received by RSG under
this Agreement.
3.6 Taxes and Fees.
Any sales, use or transfer taxes payable upon or with respect to the sale
of the Equipment shall be paid when due by RoomSystems and/or RSi BRE.
4. CLOSING.
4.1 Closing.
(a) Closing and Closing Date. Except as provided in Section 4.1(b)
below, the closing of the transactions contemplated by this Agreement (the
"Closing"), including payment of the Purchase Price and the transfer of title to
the Equipment and Revenue Sharing Contracts as provided herein, shall take place
concurrently with the execution and delivery of this Agreement (the "Closing
Date"). The Closing shall be consummated by delivery of appropriate closing
documents agreed to by RoomSystems and RSG by overnight courier to the legal
counsel of the other party, at the addresses identified in writing by the
parties hereto. Such counsel shall hold all documents, instruments and
consideration delivered by the other party in escrow until the conditions
precedent to the Closing contained herein have been satisfied or waived by
appropriate written action of the affected party. The parties agree that time is
of the essence.
(b) Conditions Subsequent. It is acknowledged and agreed that all of
the transactions contemplated by this Agreement will occur simultaneously at the
Closing; provided, however, that (i) RoomSystems and RSi BRE will have
seventy-two (72) hours from the Closing Date (the "Initial Condition Subsequent
Period") to (A) make and receive, as applicable, the cash capital contributions
to RSi BRE as required by Section 2.3, and (B) to pay to RSG the Cash Portion of
the Purchase Price as provided in Section 3.1(a); and (ii) RoomSystems and RSi
BRE will have ten (10) days from the Closing Date (the "Second Condition
Subsequent Period") to deliver to RSG the certificates representing the Stock
Portion of the Purchase Price as provided in Section 3.1(b).
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(c) Failure of Condition Subsequent. If RoomSystems and RSi BRE fail
to make the capital contributions and payment of the Cash Portion of the
Purchase Price by the end of the Initial Condition Subsequent Period, or deliver
the stock certificates representing the Stock Portion of the Purchase Price
within the Second Condition Subsequent Period, then this Agreement shall be null
and void ab initio and the Closing shall be deemed not to have occurred. In such
event, RoomSystems shall be in default under the Master Agreement and Letter
Agreements, and RSG shall have all of the rights and remedies under such
agreements and any security agreements related thereto.
4.2 Deliveries at Closing.
(a) Deliveries by RSG. Except as specifically provided otherwise in
this Agreement, at Closing, RSG shall deliver or cause to be delivered to
RoomSystems and RSi BRE, and such delivery shall be a condition to the
obligation of RoomSystems and RSi BRE to close hereunder:
(i) at such time as the initial and second conditions
precedent identified in Section 4.1(b) above have been satisfied, a duly
executed Bill of Sale ("Bill of Sale"), a form of which is attached as
EXHIBIT L hereto and a duly executed Assignment;
(ii) a duly executed copy of each of the Related Agreements to
which RSG is a party;
(iii) at such time as the initial and second conditions
precedent identified in Section 4.1(b) have been satisfied, tock
certificates representing the shares of RSi Stock which are being
transferred to the shareholders of RSi (such delivery to be made to
RoomSystems, on behalf of such shareholders, and RoomSystems hereby
covenants and agrees to promptly deliver such certificates to the RSi
shareholders; provided, however, that the stock certificate(s)
representing shares of RSi Stock owned by Royal Minson and his affiliates
shall be delivered directly by RSG to Mr. Minson); and
(iv) such other documents, agreements and instruments as
RoomSystems and RSi BRE shall reasonably request.
(b) Deliveries by RoomSystems and RSi BRE. At Closing (except as otherwise
provided), RoomSystems and Rsi BRE shall deliver or cause to be delivered to
RSG, as applicable, and such delivery is a condition to the obligation of RSG to
close hereunder:
(i) within the Initial Condition Subsequent Period, the Cash
Portion of the Purchase Price in immediately available funds, by certified
or cashiers' check or by wire transfer, as mutually agreed by the parties;
(ii) within the Second Condition Subsequent Period, stock
certificate(s) representing the Stock Portion of the Purchase Price;
(iii) the duly executed Note;
(iv) a certificate representing the 100 RSi BRE Shares to be
pledged under the Stock Pledge Agreement, duly endorsed in blank, together
with
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a stock power duly endorsed in blank, which such certificate and stock
power shall be held by the Stock and Contract Escrow Agent;
(v) executed originals of the Revenue Sharing Contracts, to be
held by the Stock and Contract Escrow Agent;
(vi) evidence to RSG's reasonable satisfaction that
RoomSystems has raised at least $4 million in cash equity contributions
pursuant to its recent Series B Preferred Stock private placement;
(vii) duly executed copies of each Related Agreement to which
either RoomSystems or RSi BRE is a party, including the Financing
Statements referenced in Section 3.4(c) above;
(viii) a certificate, executed by the President and Chief
Financial Officer of RoomSystems, to the effect that all of the
representations and warranties of RoomSystems contained in the Master
Agreement and in this Agreement are true and correct as of the Closing
Date; and
(ix) such other documents, agreements and instruments as RSG
shall reasonably request.
5. ROOMSYSTEMS AND RSi BRE'S REPRESENTATIONS AND WARRANTIES.
RSi, RIC and RSi BRE, jointly and severally, represent and warrant to RSG
as of the date of this Agreement, and they shall be deemed to restate as of the
Closing Date, each of the following representations and warranties:
5.1 Organization and Powers.
RSi BRE is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. RSi BRE has all requisite
corporate power and authority to own and operate its properties, to carry on its
business as now conducted and as proposed to be conducted, to enter into this
Agreement, and to carry out the transactions contemplated hereby.
5.2 Authority.
Each of RoomSystems and RSi BRE has the full power and authority to
execute and deliver this Agreement and each Related Agreement to which it is a
party, and to enter into and to consummate all transactions contemplated hereby
and thereby. Each of RoomSystems and RSi BRE has duly authorized, or will duly
authorize when necessary, the execution, delivery and performance of this
Agreement and the Related Agreements to which it is a party and has duly
executed and delivered, or will duly execute and deliver, this Agreement and the
Related Agreements to which it is a party. This Agreement and the applicable
Related Agreements, assuming due authorization, execution and delivery by RSG,
constitute the legal, valid and binding obligations of RoomSystems and RSi BRE,
as applicable, enforceable against them in accordance with their terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting the enforcement of creditors' rights in general and
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by general principles of equity, regardless of whether such enforcement is
considered in a proceeding in equity or at law.
5.3 Effect of Agreements; Consents.
(a) Effect of Agreement. Neither the execution or delivery of this
Agreement or the Related Agreements to which they are a party, nor the
consummation of the transactions contemplated hereby and thereby:
(i) Violates or will violate (1) any order, writ, injunction,
judgment, decree, or award of any governmental or regulatory authority or
(2) violates or will violate any laws, rules, ordinances, or regulations
to which RoomSystems or RSi BRE or any of their properties or assets are
subject, or (3) requires any filing or registration with, or consent,
authorization, approval or permit of, any governmental or regulatory
authority on the part of RoomSystems or RSi BRE;
(ii) Violates or will violate, or conflicts with or will
conflict with, any provision of, or constitutes a default under, the
articles of incorporation or bylaws of RoomSystems or RSi BRE; or
(iii) (A) violates or breaches or constitutes a default (or an
event which, with notice or lapse of time or both, would constitute a
default) under, or gives rise to a right to terminate, any mortgage,
contract, agreement, deed of trust, license, lease, or other instrument,
arrangement, commitment, obligation, understanding, or restriction of any
kind to which either RoomSystems or RSi BRE is a party or by which their
assets or properties may be bound, or (B) will cause, or give any person
or entity grounds to cause, to be accelerated (with notice or lapse of
time or both) the maturity of, or will increase, any liability or
obligation of RoomSystems or RSi BRE.
(b) Consents. No consent, approval or authorization of, or filing
with, third parties (including any governmental or regulatory authority), is
required in connection with RoomSystems' and RSi BRE's valid execution, delivery
and performance of this Agreement or the other Related Agreements to which
either of them is a party, and the consummation of the transactions contemplated
hereby and thereby.
5.4 Description of Equipment.
The list of Equipment set forth as part of EXHIBIT A hereto is a true,
complete and accurate list and description of all Equipment related to the
Revenue Sharing Contracts as of the Closing Date.
5.5 Master Agreement Representations and Warranties.
RoomSystems hereby affirms, acknowledges and restates as true, accurate
and complete each of its representations and warranties contained in the Master
Agreement, as if such representations and warranties were made as of the Closing
Date.
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6. RSG'S REPRESENTATIONS AND WARRANTIES.
RSG represents and warrants to RoomSystems and RSi BRE as of the date of
this Agreement, and shall be deemed to restate as of the Closing Date, as
follows:
6.1 Organization and Powers.
RSG is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Idaho. RSG has all requisite
limited liability company power and authority to own and operate its properties,
to carry on its business as now conducted and as proposed to be conducted, to
enter into this Agreement, and to carry out the transactions contemplated
hereby.
6.2 Authority.
RSG has the full power and authority to execute and deliver this Agreement
and each Related Agreement to which it is a party, and to enter into and to
consummate all transactions contemplated hereby and thereby. RSG has duly
authorized, or will duly authorize when necessary, the execution, delivery and
performance of this Agreement and the Related Agreements to which it is a party
and has duly executed and delivered, or will duly execute and deliver, this
Agreement and the Related Agreements to which it is a party. This Agreement and
the Related Agreements to which it is a party, assuming due authorization,
execution and delivery by RoomSystems and RSi BRE, constitute the legal, valid
and binding obligations of RSG, enforceable against it in accordance with their
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights in general and by general principles of equity, regardless of whether
such enforcement is considered in a proceeding in equity or at law.
6.3 Effect of Agreements; Consents.
(a) Effect of Agreement. Neither the execution or deliver of this
Agreement or the Related Agreements to which it is a party, nor the consummation
of the transactions contemplated hereby and thereby:
(i) Violates or will violate (1) any order, writ, injunction,
judgment, decree, or award of any governmental or regulatory authority or
(2) violates or will violate any laws, rules, ordinances, or regulations
to which RSG or any of its properties or assets are subject, or (3)
requires any filing or registration with, or consent, authorization,
approval or permit of, any governmental or regulatory authority on the
part of RSG;
(ii) Violates or will violate, or conflicts with or will
conflict with, any provision of, or constitutes a default under, the
articles or organization or operating agreement of RSG; or
(iii) (A) violates or breaches or constitutes a default (or an
event which, with notice or lapse of time or both, would constitute a
default) under, or gives rise to a right to terminate, any mortgage,
contract, agreement, deed of trust,
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license, lease, or other instrument, arrangement, commitment, obligation,
understanding, or restriction of any kind to which RSG is a party or by
which its assets or properties may be bound, or (B) will cause, or give
any person or entity grounds to cause, to be accelerated (with notice or
lapse of time or both) the maturity of, or will increase, any liability or
obligation of RSG.
(b) Consents. No consent, approval or authorization of, or filing
with, third parties (including any governmental or regulatory authority), is
required in connection with RSG's valid execution, delivery and performance of
this Agreement or the other Related Agreements to which it is a party, and the
consummation of the transactions contemplated hereby and thereby.
6.4 No Other Representations and Warranties.
EXCEPT AS SPECIFICALLY SET FORTH IN THIS SECTION 6, RSG MAKES NO OTHER
REPRESENATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE SUBJECT
MATTER OF, AND THE TRANSACTIONS CONTEMPLATED BY, THIS AGREEMENT.
7. OTHER COVENANTS AND AGREEMENTS OF THE PARTIES.
7.1 Affirmative Covenants.
RoomSystems and RSi BRE, jointly and severally, covenant and agree that,
so long as the Secured Obligations remain outstanding, RoomSystems and RSi BRE
shall perform and observe the covenants contained in this Section 7.1, in
addition to their other covenants and agreements set forth in this Agreement.
(a) Equipment and Contractual Obligations. RoomSystems and Rsi BRE
shall perform in all material respects all of their obligations under the
Revenue Sharing Contracts and New BRE Revenue Sharing Contracts and related
Maintenance Agreements relating to the Equipment and NEW BRE Units or to any
other Units covered by a Revenue Sharing Contract and/or Maintenance Agreement,
notwithstanding the failure of the Hotel to make any Payments or any other Hotel
default thereunder. Such obligations on the part of RoomSystems and RSi BRE (i)
shall survive the termination of any such Revenue Sharing Contract or New BRE
Revenue Sharing Contract or related Maintenance Agreement in accordance with its
terms, and (ii) shall include the maintenance of Equipment and NEW BRE Units at
the same level of performance demonstrated at the time a certificate of
acceptance is issued.
(b) Events of Default, etc. Promptly upon RoomSystems or RSi BRE
obtaining knowledge of (i) any condition or event that constitutes an Event of
Default hereunder, (ii) any condition or event that constitutes an event of
default under any Revenue Sharing Contract or New BRE Revenue Sharing Contract
and/or its related Maintenance Agreement, or (iii) the occurrence of any event
or change that has caused or evidences or could reasonably be expected to cause,
either in any individual case or in the aggregate, a Material Adverse Effect (as
defined in the Master Agreement), RoomSystems shall provide RSG with an
officer's certificate specifying the nature of such claimed Event of Default,
event or condition, and what action RoomSystems and/or RSi BRE has taken, is
taking and proposes to take with respect thereto.
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(c) Corporate Existence, etc. Except as permitted under Section
7.2(a) hereof, each of RSi, RIC and RSi BRE will at all times preserve and keep
in full force and effect its corporate existence and all rights and franchises
material to the business of RoomSystems, taken as a whole.
(d) Payment of Taxes and Claims; Tax Consolidation. RoomSystems will
pay all taxes, assessments and other governmental charges imposed upon it or any
of its properties or assets or in respect of any of its income, businesses,
franchises or subsidiaries before any penalty accrues thereon, and all claims
(including, without limitation, claims for labor, services, materials and
supplies) for such that have become due and payable and that by law have or may
become a lien upon any of its properties or assets prior to the time when any
penalty or fine shall be incurred with respect thereto; provided, that no such
charge or claim need be paid if being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if such reserve or
other appropriate provision, if any, as shall be required in conformity with
generally accepted accounting principles shall have been made therefor.
(e) Maintenance of Properties; Insurance. RoomSystems will maintain
or cause to be maintained in good repair, working order and condition, ordinary
wear and tear excepted, all material properties used or useful in its business
and the business of its subsidiaries (including, without limitation, its
Intellectual Property and General Intangibles, as defined in the Master
Agreement) and from time to time will make or cause to be made all appropriate
repairs, renewals and replacements thereof. RoomSystems will maintain or cause
to be maintained, with financially sound and reputable insurers, insurance with
respect to its properties and business against loss or damage of the kinds
customarily carried or maintained under similar circumstances by corporations of
established reputation engaged in similar businesses, including, without
limitation, the insurance policies required under each Revenue Sharing Contract
and New BRE Revenue Sharing Contract with respect to the Equipment and New BRE
Unit, as applicable.
(f) Inspection. RoomSystems shall permit, in coordination with the
applicable Hotel, any authorized representatives designated by RSG to visit and
inspect any Equipment or New BRE Unit subject to a Revenue Sharing Contract or
New BRE Revenue Sharing Contract or any of the properties of RoomSystems or RSi
BRE, including its financial and accounting records, and to make copies and take
extracts therefrom, and to discuss its affairs, finances, accounts and
operations with its officers, all upon reasonable notice and at such reasonable
times during normal business hours and as often as may be reasonably requested.
(g) Compliance with Laws, etc. RoomSystems and RSi BRE shall comply
with the requirements of all applicable laws, rules and regulations of any
governmental or regulatory authority, noncompliance with which in any individual
case or in the aggregate would have, or would reasonably be expected to cause, a
Material Adverse Effect.
(h) Further Assurances. At any time or from time to time, upon the
request of RSG, RoomSystems and RSi BRE shall execute and deliver such further
documents and do such other acts and things as RSG may reasonably request in
order to effect fully the purposes of this Agreement.
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7.2 Negative Covenants.
RoomSystems and RSi BRE, jointly and severally, covenant and agree that,
so long as the Secured Obligations remain outstanding, RoomSystems and RSi BRE
shall perform and observe the covenants contained in this Section 7.2, in
addition to their other covenants and agreement set forth in this Agreement.
(a) Restriction on Fundamental Changes; Asset Sales. Neither
RoomSystems nor RSi BRE shall, without RSG's prior written consent, directly or
indirectly:
(i) be a part to any merger or consolidation; or
(ii) sell, transfer, convey, lease or otherwise dispose of all
or a substantial part of the assets taken as a whole of RoomSystems and/or
RSi BRE, or sell, transfer, convey, lease or otherwise dispose of any
stock, ownership interest or other equity interest, in a single
transaction or a series of transactions, representing more than 51% of the
outstanding capital stock of RoomSystems and/or RSi BRE.
Notwithstanding the foregoing:
(x) any wholly-owned subsidiary of RoomSystems may merge into
RSi or RIC, or into or with any other wholly-owned subsidiary of RSi or
RIC, or RoomSystems may undertake a corporate reorganization such that RIC
is the corporate parent of RSi;
(y) any wholly-owned subsidiary of RoomSystems may consolidate
with any other wholly-owned subsidiary of RSi or RIC so long as
immediately thereafter, 100% of the voting stock or other ownership
interest of the resulting person or entity is owned by RoomSystems or
another wholly-owned subsidiary of RoomSystems; and
(z) RoomSystems or any wholly-owned subsidiary of RoomSystems
may sell, transfer, convey, lease or assign all or a substantial part of
its assets to another wholly-owned subsidiary of RSi or RIC; provided,
however, in each of the cases described in preceding clauses (x), (y) and
(z), that immediately thereafter and after giving effect thereto, no Event
of Default shall have occurred and be continuing; provided, further, in
each of such cases, the transactions provided for in such clauses (x), (y)
and (z) shall not apply or be applicable to RSi BRE until all obligations
under the Note have been paid in full and; provided, further, the terms
and conditions of this Agreement and the Related Agreements shall apply to
and be enforceable against and binding upon such transferee or successor
entity.
(b) Transactions with Shareholders and Affiliates. Neither RoomSystems nor
RSi BRE shall, without RSG's prior written consent, directly or indirectly,
enter into or permit to exist any transaction (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with any holder of 10% or more of any class of equity
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securities of RoomSystems or with any affiliate of RoomSystems or of any such
holder, on terms that are less favorable to RoomSystems than those that might be
obtained at the time from persons or entities who are not such a holder or
affiliate; provided, that the foregoing restriction shall not apply to any
transaction between RoomSystems and any of its wholly-owned subsidiaries or
between any of its wholly-owned subsidiaries.
8. EVENTS OF DEFAULT.
8.1 Events of Default.
Whenever used herein, the term "Event of Default" means any one of the
following events:
(a) Breach of Representations, Warranties and Covenants. (i) Any
representation, warranty, certification or other statement made by RoomSystems
or RSi BRE in this agreement or in any Related Agreement or in any statement or
certificate at any time given by RoomSystems or RSi BRE in writing pursuant
hereto or in connection herewith, or any of the representations and warranties
of RoomSystems in the Master Agreement herein reaffirmed and restated, shall be
false in any material respect on the date as of which made or reaffirmed; or
(ii) any failure on the part of RoomSystems or RSi BRE duly to observe or
perform in any material respect any of the covenants or agreements on the part
of RoomSystems and RSi BRE set forth in this Agreement or in any Related
Agreement that continues unremedied for a period of fifteen (15) days after the
date on which written notice of such failure, requiring the same to be remedied,
shall have been given to RoomSystems and/or RSi BRE by RSG; or
(b) New BRE Units; Note Payment Failure. RSi BRE shall not have
manufactured, installed and rendered fully operational at least 750 New BRE
Units by May 1, 2000; or in the event RSi's initial firm underwritten public
offering of its common stock ("IPO") is declared effective by the Securities and
Exchange Commission at any time prior to November 30, 2000, RSi BRE shall have
failed to repay the Note in full within thirty (30) days of the effective date
of the IPO; or
(c) Default in Revenue Sharing Contracts/Maintenance Agreements. Any
material default by RoomSystems or RSi BRE under any of their obligations under
any Revenue Sharing Contract (including New BRE Revenue Sharing Contracts) or
related Maintenance Agreement, including, without limitation, a material failure
or inability of RoomSystems or RSi BRE to meet their service and maintenance
obligations under any outstanding Maintenance Agreement with any Hotel; or
(d) Default Under Other Contractual Obligations. RoomSystems or RSi
BRE shall be in default under, or an event shall have occurred that, with notice
or lapse of time or both, would constitute a default by RoomSystems or RSi BRE
under any of their other Contractual Obligations which would have a Material
Adverse Effect; or
(e) Involuntary Bankruptcy; Appointment of Receiver. (i) a court
having jurisdiction in the premises shall enter a decree or order for relief in
respect of RoomSystems or RSi BRE in an involuntary case under the Bankruptcy
Code, or under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, which decree or order is not
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stayed; or other similar relief shall be granted under any applicable Federal or
state law; (ii) an involuntary case shall be commenced against RoomSystems or
RSi BRE under the Bankruptcy code or under any other applicable bankruptcy,
insolvency or similar law now or hereafter in effect; or a decree or order of a
court having jurisdiction in the premises for the appointment of a receiver,
liquidator, sequestrator, trustee, custodian or other officer having similar
powers over RoomSystems or RSi BRE, or over all or a substantial part of their
property, shall have been entered; or there shall have occurred the involuntary
appointment of an interim receiver, trustee or other custodian of RoomSystems or
RSi BRE for all or a substantial part of their property; or a warrant of
attachment, execution or similar process shall have been issued against any
substantial part of the property of RoomSystems or RSi BRE, and any such event
described in this clause (ii) shall continue for sixty (60) days unless
dismissed, bonded or discharged; or
(f) Voluntary Bankruptcy; Appointment of Receiver; etc. (i)
RoomSystems or RSi BRE shall have an order for relief entered with respect to
either of them or commence a voluntary case under the Bankruptcy Code or under
any other applicable bankruptcy, insolvency or similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of their
property; or either of RoomSystems or RSi BRE shall make a general assignment
for the benefit of creditors; or (ii) either RoomSystems or RSi BRE shall be
unable or shall fail, or shall admit in writing its inability, to generally pay
its debts as such debts become due; or the Board of Directors of either
RoomSystems or RSi BRE (or any committee thereof) shall adopt any resolution or
otherwise authorize any action to approve any of the actions referred to in
clause (i) above or this clause (ii); or
(g) Judgments and Attachments. Any money judgment, writ or warrant
of attachment or similar process involving in the aggregate at any time an
amount in excess of $15,000 shall be entered or filed against RoomSystems or RSi
BRE or any of their assets and shall remain undischarged, unbonded or unstayed
for a period of thirty (30) days (or in any event later than five (5) days prior
to the date of any proposed sale thereunder); or
(h) Dissolution. Any order, judgment or decree shall be entered
against RoomSystems or RSi BRE decreeing the dissolution or split up of either
RoomSystems or RSi BRE and such order shall remain undischarged or unstayed for
a period in excess of thirty (30) days; or
(i) Material Adverse Effect. A Material Adverse Effect shall have
occurred with respect to either RoomSystems or RSi BRE.
8.2 Remedies.
If an Event of Default shall have occurred and be continuing, RSG shall
have the following remedies:
(a) Obligations. RSG may declare all of the Secured Obligations
immediately due and payable. In respect of the foregoing, the amount due and
payable from all
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unpaid future Payment allocations to RSG from the Revenue Sharing Contracts and
new BRE Revenue Sharing Contracts as set forth in the Payment Allocation
schedule shall be based on the discounted present value of such unpaid
allocations, assuming for the purpose of such calculation: (i) each Unit
produces revenue of $0.716 per day, (ii) a discount rate of eight percent (8%)
per annum, (iii) a term equal to the remaining term of the Revenue Sharing
Contract and New BRE Revenue Sharing Contract related to each Unit, and (iv) a
residual value for each Unit of $300.00.
(b) Assignment and Transfer of Revenue Sharing Contracts. All of RSi
BRE's right, title and interest in, to and under the Revenue Sharing Contracts
and New BRE Revenue Sharing Contracts shall be automatically and irrevocably
assigned, transferred and delivered to RSG, without any action required on the
part of RSG, RoomSystems or RSi BRE. Such assignment and transfer shall not
operate to terminate any of RoomSystems' and/or RSi BRE's servicing and
maintenance obligations under the Maintenance Agreements applicable to such
Revenue Sharing Contracts and New BRE Revenue Sharing Contracts, and such
obligations shall survive the irrevocable assignment and transfer of such
contracts to RSG.
(c) Additional Remedies. In addition to the remedies set forth in
the foregoing Sections 8.2(a) and 8.2(b), upon an Event of Default, RSG may, at
its sole option, without demand and upon such notice as may be required by law,
and irrespective of negative consequences to RoomSystems, RSi BRE or any other
party, do any one or more of the following: (i) require RoomSystems and RSi BRE
to assemble the Collateral and make it available to RSG at a place designated by
RSG; (ii) immediately take possession of the Collateral wherever it may be found
using all necessary and lawful actions to do so, and each of RoomSystems and RSi
BRE waives all claims to damages due to or arising from or connected with any
such taking; (iii) proceed in the foreclosure set forth in the Security
Agreement and sell all the Collateral in any manner permitted by law or provided
for therein; (iv) sell the Collateral at public or private sale with or without
having said Collateral at the place of sale and upon terms and in such manner as
RSG may determine, with RoomSystems and RSi BRE agreeing that if notice of such
a sale is required by law, a ten (10) day notice period shall be commercially
reasonable unless a shorter time period is permitted by law; (v) take possession
of RoomSystem's premises in order to (A) continue servicing and maintaining the
Equipment and New BRE Units covered by any Revenue Sharing Contract or New BRE
Revenue Sharing Contract pursuant to the applicable Maintenance Agreement, (B)
repair and recondition such Equipment and New BRE Units, as necessary, using the
facilities and other property of RoomSystems, (C) store any of the Collateral
subject to RSG's security interest, and (D) conduct any sale as provided for in
the Security Agreement, all without compensation to RoomSystems or RSi BRE and
any sums expended therefor by RSG, for which no consideration is received, shall
be repaid by RoomSystems and RSi BRE as part of the Secured Obligations under
this Agreement; (vi) sell, in one or more sales, at public or private sale, for
such price as it may deem fair, any or all of the Collateral; (vii) be the
purchaser of any of the Collateral so sold and hold the same thereafter in its
own right, absolutely free from any claims or rights of RoomSystems or RSi BRE;
(viii) exercise any other right under the Related Agreements.
(d) Application of Proceeds; etc. The net proceeds of any sale as
hereinbefore described shall be applied against the amount owed on the Secured
Obligations in such order as RSG may elect. RoomSystems and RSi BRE shall
promptly pay to RSG any
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deficiency upon demand. Demand of performance, advertisement and presence of
property at sale, and all other demands and presentments of any kind or nature
are expressly waived by RoomSystems and RSi BRE. In addition, each of
RoomSystems and RSi BRE hereby (i) waives any right to require RSG to proceed
against any Collateral, (ii) waives the right to require RSG to pursue any other
remedy for the benefit of RoomSystems or RSi BRE and (iii) agrees that RSG may
proceeds against RoomSystems and/or RSi BRE for the amount of the obligations
owed by RoomSystems and RSi BRE to RSG hereunder without taking any action
against any other party and without selling or otherwise proceeding against or
applying any Collateral.
(e) Cumulative Remedies. All rights and remedies of RSG hereunder
and under the Security Documents are cumulative and may be exercised singly or
concurrently and the exercise of any one or more of them shall not constitute a
waiver of any other right or remedy. No act, delay, omission or course of
dealing between RoomSystems/Rsi BRE and RSG will constitute a waiver of any of
RSG's rights or remedies under this Agreement or otherwise. No waiver by RSG of
any right, remedy or event of default with respect to any of the obligations of
RoomSystems or RSi BRE hereunder shall operate as a waiver of any other right,
remedy, or event of default on a future occasion. No waiver, change,
modification or discharge of any of RSG's rights, or the duties of RoomSystems
or RSi BRE as so specified or allowed, will be effective unless contained in a
written instrument signed by RSG.
9. NOTICES.
Any notice or demand required or permitted to be given under the terms of
this Agreement shall be deemed to have been duly given or made if given by any
of the following methods:
(a) Deposited in the United States mail, in a sealed envelope,
postage prepaid, by registered or certified mail, return receipt requested,
respectively addressed as follows:
To RoomSystems and
RSi BRE: RoomSystems, Inc.
Attention: Derek K. Ellis
Chief Financial Officer
390 North 3050 East
St. George, Utah 84790
Telephone: 435/688-3605
Fax number: 435/628-8611
If to RSG: RSG Investments, LLC
Attention: Donnelly Prehn
412 E. ParkCenter Blvd.,
Suite 300
Boise, Idaho 83706
Telephone: 208/333-2072
Fax number: 208/343-1145
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<PAGE>
With a copy AMRESCO Leasing Corporation
to: Attention: William C. Cole, Esq.
412 E. ParkCenter Blvd.,
Suite 300
Boise, Idaho 83702
Telephone: 208/333-2000
Fax number: 208/333-2050
(b) Hand-delivered or sent to the above address via an established
national overnight delivery service (such as Federal Express), charges prepaid,
or
(c) Sent via any electronic communications method provided the
sender obtains written confirmation of receipt of the communication by the
electronic communication equipment at the office of the address listed above.
Notices delivered by mail shall be deemed given five (5) Business Days
after being deposited in the United States mail, return receipt requested.
Notices delivered by hand, by facsimile, or by a nationally recognized private
carrier shall be deemed given on the first Business Day following receipt;
provided, however, that a notice delivered by facsimile shall only be effective
if such notice is also delivered by hand, or deposited in the United States
mail, postage prepaid, registered or certified mail, on or before two (2)
Business Days after it is delivered by facsimile. Any party may hereinafter
designate other addresses to which notice may be sent, upon written notice sent
to the other parties at the address above designated, or subsequently designated
in accordance herewith.
10. GENERAL PROVISIONS.
10.1 Entire Agreement; Amendment.
This Agreement (including the Exhibits hereto) and the other documents
delivered pursuant hereto and referenced herein constitute the full and entire
understanding and agreement between the parties with respect to the subject
matter hereof and supersede, merge, and replace, all prior negotiations, offers,
promises, representations, warranties, agreements and writing with respect to
such subject matter, both written and oral. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated, except by a written instrument signed by the parties hereto.
10.2 Assignments.
Neither RoomSystems nor RSi BRE shall assign its rights or obligations
under this Agreement without the prior written consent of RSG. RSG may assign
any or all of its rights, title, interests or duties, in whole or in part,
hereunder without the prior written consent of RoomSystems or RSi BRE. RSG shall
notify RoomSystems of any such assignment within thirty (30) days of such
assignment taking effect. RoomSystems and RSi BRE shall provide any consents
necessary to effect any assignment of this Agreement.
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10.3 Indemnity.
RSi, RIC and RSi BRE, jointly and severally, agree to defend, indemnify,
pay and hold harmless RSG and the officers, members, managers, employees,
counsel, agents and affiliates of RSG (collectively, the "Indemnitees") from and
against any and all losses, claims, damages, obligations, payments, costs or
expenses (including, without limitation the costs and expenses of any Action (as
defined in the Master Agreement), any demand, assessment, judgment, settlement
or compromise related thereto and reasonable attorneys' fees, disbursements and
other charges in connection therewith) (collectively, "Losses"), whether based
on any federal, state or foreign laws, statutes, rules or regulation, on common
law or equitable cause or on contract or otherwise, that may be imposed on,
incurred by or asserted against any such Indemnitee, in any manner relating to,
arising out of or resulting from this Agreement, the Related Agreements, the
Secured Obligations or the transactions contemplated hereby and thereby
(collectively, the "Indemnified Liabilities"); provided, however, that
RoomSystems and RSi BRE shall not have any obligation to any Indemnitee
hereunder with respect to any Indemnified Liabilities to the extent such
Indemnified Liabilities arise from the gross negligence or willful misconduct of
that Indemnitee as determined by a final judgment of a court of competent
jurisdiction. To the extent that the undertaking to defend, indemnify, pay and
hold harmless set forth in the preceding sentence may be unenforceable because
it is violative of any law or public policy, RoomSystems and RSi BRE shall
contribute the maximum that they are permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by the Indemnitees or any of them.
10.4 Waiver.
Any party may waive the performance of any obligation owed to it by any
other party or parties hereunder or for the satisfaction of any condition
precedent to the waiving party's duty to perform any of its covenants, including
its obligations to close. Any such waiver shall be valid only if contained in a
writing signed by the party to be charged.
10.5 Independent Covenants.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default if such action is taken or condition exists.
10.6 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument. Any counterpart may be delivered by facsimile; provided,
however, that attachment thereof shall constitute the representation and
warranty of the person delivering such signature that such person has full power
and authority to attach such signature and to deliver this Agreement. Any
facsimile signature shall be replaced with an original signature as promptly as
practicable.
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10.7 Severability.
If any term or condition of this Agreement shall be held invalid in any
respect, such invalidity shall not affect the validity of any other term or
condition hereof. The parties hereto acknowledge that they would have executed
this Agreement with any such invalid term or condition excluded.
10.8 Governing Law; Attorneys' Fees.
(a) Governing Law and Venue. This Agreement and the Related
Agreements shall be governed by, construed, interpreted and applied in
accordance with the laws of the State of Idaho, without giving effect to any
conflict of laws rules that would refer the matter to the laws of another
jurisdiction. In the event any action or dispute is initiated hereunder, each
party hereto hereby irrevocably submits to the exclusive jurisdiction of the
courts of the State of Idaho in Ada County, for the purposes of any action
arising out of this Agreement, or the subject matter hereof or thereof. To the
extent permitted by applicable law, each party hereby waives and agrees not to
assert, by way of motion, as a defense or otherwise in any such action, any
claim (i) that it is not subject to the jurisdiction of the above-named courts,
(ii) that the action is brought in an inconvenient forum, (iii) that it is
immune from any legal process with respect to itself or its property, (iv) that
the venue of the suit, action or proceeding is improper or (v) that this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
(b) Attorneys' Fees. The prevailing party in any action or
proceeding relating to this Agreement shall be entitled to recover from the
non-prevailing parties, reasonable attorneys' fees and other costs incurred with
or without trial, in bankruptcy or on appeal, in addition to any other relief to
which such prevailing party may be entitled.
10.9 Independent Contractor.
In connection with any actions that RoomSystems or RSi BRE may take under
this Agreement in connection with any Equipment or New BRE Units, and their
related Revenue Sharing Contracts, New BRE Revenue Sharing Contracts and
Maintenance Agreements, as applicable, RoomSystems and RSi BRE are, and shall
act as, independent contractors and shall not have any authority to make any
commitments, statements or representations, or incur any obligations, on behalf
of RSG, or to bind or commit RSG in any manner, to make, alter, or execute any
document or agreement on behalf of RSG. Neither RoomSystems nor RSi BRE shall
use any name or mark of RSG or any affiliate of RSG in any way unless it has
RSG's prior written approval. Neither RoomSystems nor RSi BRE shall accept
service of any legal process in any action that may be brought against RSG, or
employ attorneys to defend without RSG's prior written approval.
10.10 Parties in Interest.
Nothing in this Agreement, whether expressed or implied, is intended to
confer any rights or remedies under or by reason of this Agreement or any
persons other than the parties to it and their respective heirs, executors,
administrators, personal representatives, successors and permitted assigns, nor
is anything in this Agreement intended to relieve or discharge the
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obligations or liability of any third persons to any party to this Agreement,
nor shall any provision give any third persons any right of subrogation or
action over or against any party to this Agreement.
10.11 Time of Essence.
Time is of the essence of each and every provision of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Equipment Transfer
Agreement by their duly authorized officers as of the day and year first above
written.
ROOMSYSTEMS: ROOMSYSTEMS, INC.
By: /s/ Steven L. Sunyich
----------------------------------
Print Name: Steven L. Sunyich
Title: CEO
ROOMSYSTEMS INTERNATIONAL CORPORATION
By: /s/ Steven L. Sunyich
----------------------------------
Print Name: Steven L. Sunyich
Title: CEO
RSi BRE: RSI, BRE, INC.
By: /s/ Steven L. Sunyich
----------------------------------
Print Name: Steven L. Sunyich
Title: CEO
RSG: RSG INVESTMENTS, LLC
By: /s/ Donnelly L. Prehn
----------------------------------
Print Name: Donnelly L. Prehn
Title: Authorized Agent
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Exhibit 10.14
AMENDMENT TO EQUIPMENT TRANSFER AGREEMENT
This Amendment to the Equipment Transfer Agreement (the
"Amendment") is entered into as of this 23rd day of November, 1999 by and among
ROOMSYSTEMS, INC., a Nevada corporation (RSi"), ROOMSYSTEMS INTERNATIONAL
CORPORATION, a Nevada corporation and a wholly-owned subsidiary of RSi, doing
business as RoomSystems International Funding Corporation ("RIC"), and RSi BRE,
Inc., a Nevada corporation and a wholly-owed subsidiary of RSi ("RSi BRE"), on
the one hand, and RSG INVESTMENTS, LLC, an Idaho limited liability company
("RSG"), on the other hand. RSi, RIC, RSi BRE and RSG are collectively referred
to hereinafter as the "Parties".
WITNESSETH:
WHEREAS, the Parties entered into an Equipment Transfer Agreement
on September 28, 1999 (the "Equipment Transfer Agreement"); and
WHEREAS, the Parties desire to amend the Equipment Transfer
Agreement to correct several misstatements therein, including (i) the Parties
intention that RSi receive all monies relating to the sale of Equipment and/or
New BRE Units upon the conclusion of the Revenue Sharing Contracts and any New
BRE Revenue Sharing Contracts, subject to the remarketing obligations of RSi,
(ii) notwithstanding the occurrence of an Event of Default, neither RSG nor RSi
BRE, upon the conclusion of the Revenue Sharing Contracts and New BRE Revenue
Sharing Contracts, shall have allocation rights, to the extent provided in the
Payment Allocation Schedule, to the Equipment and the New BRE Units.
NOW, THEREFORE, in consideration of the foregoing recitals, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein
shall have the meanings ascribed thereto in the Equipment
Transfer Agreement.
2. The final sentence of Section 3.2 (a) (iii) of the Equipment
Transfer Agreement shall be amended as follows:
The term "RSG" shall be stricken and replaced with "RIC".
3. The Payment Allocation Schedule shall be amended as follows:
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a. For the purpose of the Payment Allocation Schedule "Initial
Term" shall mean the term of the Existing Contracts and the New
BRE Revenue Sharing Contracts.
b. The following phrases shall be stricken:
1. "and any extension term or terms"
2. "or any extension term"
3. "or any extension term thereafter"
4. "and any extension"
5. "the extension of"
c. In Section 1(b), the term "RSG" shall be stricken and replaced
with "RIC".
d. In Section 2(f), the term "RSG" shall be stricken and replaced
with "RIC".
e. The following language on page F-2 shall be stricken in its
entirety:
"PROVIDED, HOWEVER, that the cost of any refurbishing of Units in
connection with the extension of any Revenu Sharing Contract upon
the expiration of an initial term or any extension term will be
charged to, and paid out of, RSG's Payment allocation set forth
above."
f. The last sentence of Section 2(f) shall be stricken in its
entirety.
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, this Amendment was executed by the Parties as
of the date first written above.
RSG INVESTMENTS, LLC,
an Idaho Limited Liability Company
By: /s/ Donnelly L. Prehn
-------------------------
Print Name: Donnelly L. Prehn
-----------------
It's: Authorized Agent
-----------------------
ROOMSYSTEMS, INC.,
a Nevada Corporation
By: /s/ Steven L. Sunyich
-------------------------
Print Name: Steven L. Sunyich
-----------------
It's: CFO
-----------------------
ROOMSYSTEMS INTERNATIONAL CORPORATION,
By: /s/ Steven L. Sunyich
---------------------
Print Name: Steven L. Sunyich
-----------------
It's: CFO
-----------------------
Rsi BRE, Inc.,
a Nevada Corporation
By: /s/ Steven L. Sunyich
---------------------
Print Name: Steven L. Sunyich
-----------------
It's: CFO
-----------------------
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Exhibit 10.15
CONVERSION AGREEMENT
December 30, 1999
RoomSystems, Inc.
390 North 3050 East
St. George, Utah 84790
Ladies and Gentlemen:
1. Conversion. Subject to the terms and conditions set forth herein, the
undersigned hereby irrevocably converts $219,153 of (i) accrued salary, (ii)
accrued consulting fees and (iii) outstanding principal and accrued interest
relating to transferred intellectual property, evidenced by a promissory note
issued by RoomSystems, Inc ("Company") in favor of the undersigned, into 73,051
shares of Series B Convertible Preferred Stock (the "Shares") of the Company.
The Shares are sometimes referred to herein as the "Securities."
The undersigned is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. The undersigned
understands that the Securities will not be registered or qualified under any
federal or state securities laws in reliance upon exemptions therefrom. The
undersigned acknowledges and agrees that in order to ensure that the offer and
sale of the Securities are exempt from registration or qualification, the
Company will rely on the covenants, representations and warranties which the
undersigned has made in this Conversion Agreement (the "Agreement").
Accordingly, the undersigned makes the following covenants, representations and
warranties for the purpose of inducing the Company to permit the undersigned to
acquire the Securities for which the undersigned hereby subscribes.
The undersigned acknowledges that the Company reserves the right to accept
or reject any subscription in its sole discretion, in whole or in part.
2. Knowledge. By executing this Agreement, the undersigned acknowledges
having read, understood and agreed to each and every provision contained herein.
3. Representations Warranties and Covenants. The undersigned hereby makes
the following representations and warranties to the Company:
3.1. The undersigned is acquiring the Securities solely for the
undersigned's own account, or for one or more fiduciary accounts for which the
undersigned has sole investment discretion. The undersigned is acquiring such
Securities without a view to, and not for resale in connection with, a
distribution of the Securities within the meaning of the Securities Act of 1933,
as amended (the "Act"). The undersigned hereby covenants and agrees that the
undersigned shall not sell any of the Securities in violation of the Act.
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3.2. The undersigned understands that the Securities have not been
registered under the Act or qualified under the securities laws of any states
and therefore cannot be transferred, resold, pledged, hypothecated, assigned or
otherwise disposed of unless such Securities are subsequently registered or
qualified under the Act and under applicable state securities laws, or an
exemption from registration and/or qualification is available. The undersigned
will not sell or otherwise transfer the Securities without registration under
the Act or pursuant to an exemption therefrom, and the undersigned understands
and agrees that the Company is not obligated to register or qualify any shares
of its Common Stock on its behalf or to assist the undersigned in complying with
any exemption from such registration or qualification.
3.3. If the undersigned is a corporation, partnership, trust or
other entity, the undersigned represents and warrants that the signatory hereto
is authorized and qualified to become a stockholder in the Company; and such
entity and the undersigned signatory hereto for such stockholder further
represents and warrants that such signatory has been duly authorized by the
prospective stockholder to execute this Agreement.
3.4. The undersigned further certifies and acknowledges as follows:
(a) The undersigned has adequate means of providing for the
undersigned's current needs and possible personal or other contingencies, and
the undersigned has no need for liquidity of the undersigned's investment in the
Securities;
(b) The undersigned has a net worth sufficient to bear the
economic risk of losing the undersigned's entire investment in the Securities;
(c) The undersigned does not have an overall commitment to
non-readily marketable investments which is disproportionate to the
undersigned's net worth and the investment subscribed for herein will not cause
such overall commitment to become excessive.
3.5. The address set forth below is the undersigned's true and
correct residence and/or principal place of business, and the undersigned has no
present intention of becoming a resident of any other state or jurisdiction.
3.6. The undersigned acknowledges and is aware that the Securities
are speculative investments which involve a high degree of risk of loss by the
undersigned of his, her or its entire investment in the Company.
3.7. It has never been guaranteed or warranted to the undersigned by
the Company or by any other person, expressly or by implication, that:
(a) The undersigned will be required to remain an owner of
Securities any approximate or exact length of time;
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(b) The undersigned will receive any approximate or exact
amount of return or other type of consideration, profit or loss as a result of
an investment in the Securities, or
(c) The past performance or experience on the part of the
Company, any director, officer or any affiliate thereof, will in any way
indicate or predict future operating results of the Company or the overall
success of the Company.
3.8 If the undersigned is more than one person, the obligations of
the undersigned shall be joint and several, and the representations and
warranties herein contained shall be deemed to be made by and be binding upon
such person, and ownership of the Securities subscribed for by the undersigned
shall be as set forth on the signature page hereto.
3.9 If there should be any adverse change in the representations and
information set forth herein prior to the Company's acceptance or rejection of
this subscription, the undersigned will immediately
3.10 The undersigned hereby agrees that the representations and
warranties set forth in this Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the undersigned, but this
subscription is not voluntarily transferable or assignable by the undersigned.
This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Nevada.
3.11 The undersigned acknowledges and agrees that all
representations, warranties and covenants made by the undersigned to the Company
in this Agreement shall survive the issuance of his, her or its Securities. The
undersigned agrees to protect, defend, indemnify and hold harmless the Company
from all losses, costs, expenses (including, without limitation, reasonable
attorney's fees and expenses) or liabilities for any breach of the undersigned's
representations, warranties or covenants.
3.12 The undersigned acknowledges and agrees that instruments
representing the Shares issued upon exercise of the Option will bear a legend
restricting transferability, in substantially the form as follows, and agrees to
comply in all respects with the terms of such legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.
4. Acceptance. This subscription is subject to final acceptance by the
Company, to be evidenced by the signature of the individual investor or the
signatory on behalf an entity converting
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hereunder as set forth on Signature Pages No. 1 and No. 2 to this Agreement,
respectively.
5. Registered Name for the Shares. The certificate(s) representing the
Shares should be registered in the following name(s) and denomination(s):
Name Number of Shares
---- ----------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Address of Record. The certificate(s) representing the Shares should
be sent to the following address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Rest of Page Intentionally Left Blank)
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SIGNATURE FOR INDIVIDUAL INVESTOR:
- ---------------------------------
IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement as
of __________________________.
- -------------------------------------------------------
(Signature)
- -------------------------------------------------------
(Print Name)
Address: ______________________________________________
- -------------------------------------------------------
- -------------------------------------------------------
(Social Security Number)
- -------------------------------------------------------
(Signature of Spouse, If Applicable)
- -------------------------------------------------------
(Print Name of Spouse)
If Joint Ownership. Check One:
- ------------------------------
____ Husband and Wife, as Community Property
____ Joint Tenants with Right of Survivorship
____ Tenants-in-Common
ACCEPTANCE:
The subscription of the above-named investor is hereby accepted by the Company
as of December 30, 1999.
"COMPANY"
By:_____________________________________
Gregory L. Hrncir, Secretary
[Signature Page No. 1 to Subscription Agreement]
5
<PAGE>
SIGNATURE FOR PARTNERSHIP, TRUST, LLC, CORPORATION OR OTHER ENTITY:
- ------------------------------------------------------------------
IN WITNESS WHEREOF, the undersigned has executed this Subscription Agreement as
of this ____ day of _____________________.
- -------------------------------------------------------
(Print Name of Stockholder)
- -------------------------------------------------------
(Signature)
- -------------------------------------------------------
(Print Name of Person Signing)
- -------------------------------------------------------
(Title)
- -------------------------------------------------------
(Print Type of Entity and Jurisdiction)
- -------------------------------------------------------
(U.S. Taxpayer Identification Number)
ACCEPTANCE:
The subscription of the above-named investor is hereby accepted as of December
30, 1999.
"COMPANY"
By:__________________________________
Gregory L. Hrncir
Secretary
[Signature Page No. 2 to Subscription Agreement]
6
<PAGE>
Exhibit 10.16
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (the "Agreement") is entered
into as of February 15, 2000, by and among RoomSystem Technologies, Inc., a
Nevada corporation ("Debtor") and Ash Capital, LLC("Secured Party" or "Lender").
Debtor and Secured Party may be independently referred to hereinafter as "Party"
or collectively as the "Parties."
RECITALS
WHEREAS, the Debtor is offering one secured promissory note, in
the principal amount of $500,000, bearing simple interest at the rate of ten
percent (10%) per annum, and maturing on May 31, 2000 (the "Note"). The Note is
secured by the items set forth in Section 6 hereinbelow. In addition, Lender
shall be issued a warrant to purchase 25,000 shares of Debtor's Common Stock,
exercisable at the rate of $3.60 per share at any time through the second
anniversary of the Company's initial public offering (the "Warrant").
NOW, THEREFORE, in consideration of the mutual covenants,
agreements, representations, and warranties contained in this agreement, the
receipt and sufficiency of which is hereby mutually acknowledged, the Parties
agree as follows:
AGREEMENT
1. Recital. The recital set forth above is incorporated herein by this
reference in its entirety.
2. Loan Amount. Pursuant to the terms of the Note attached hereto as Exhibit
1, Secured Party has agreed to loan Debtor the principal amount of Five Hundred
Thousand Dollars ($500,000) (the "Loan"), to be repaid from the proceeds of the
sale of the Collateral.
3. Delivery of Promissory Note and Warrant to Purchase Common Stock. In
consideration thereof, Debtor will issue, cause to be executed and deliver to
Secured Party, concurrent with its execution hereof, the Note, upon the terms
and conditions specified herein and in the form attached hereto as Exhibit 1,
and the Warrant, upon the terms and conditions specified herein and in the form
attached hereto as Exhibit 2.
4. Default Provisions. The occurrence of any of the following events shall
constitute an event of default:
4.1 The nonpayment of any principal or interest by Debtor on the
Loan when the same becomes due and payable.
4.2 The entry of a decree or order by a court having appropriate
jurisdiction adjudging Debtor a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization or liquidation of Debtor under the
Federal Bankruptcy Act or any other applicable federal or state law, or
appointing a receiver, liquidator, assignee or trustee over any substantial
portion of the Debtor's property or Collateral, as defined in Section 6, or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of sixty (60)
consecutive days.
<PAGE>
4.3 The institution by Debtor of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under the Federal Bankruptcy Act or
any other applicable federal or state law, or consent by it to the filing of any
such petition or to the appointment of a receiver, liquidator, assignee or
trustee of the Debtor, or of any substantial part of its property, or if the
Collateral, as defined in Section 6.2, shall become subject to the jurisdiction
of a federal bankruptcy court or similar state court, or if Debtor shall make an
assignment for the benefit of its creditors, or if there is an attachment,
receivership, execution or other judicial seizure.
4.4 Intentionally Left Blank.
4.5 Debtor's failure to comply with any material term,
obligation, covenant, or condition contained in this Agreement following receipt
of written notice from the Secured Party demanding such compliance.
4.6 Any warranty, covenant, or representation made to Secured
Party by Debtor under this Agreement, or any related agreement executed in
connection with the issuance of the Note and Warrant, proves to have been false
in any material respect when made or furnished.
4.7 Any levy, seizure, attachment, lien on the Collateral, as
defined in Section 6.2, other than those existing as of the date hereof , that
is not discharged by Debtor within ten (10) days.
4.8 Any sale, transfer, or disposition of any interest in the
Collateral, other than in the ordinary course of business, without the prior
written consent of Secured Party.
4.9 Any other default under the terms of the Note.
5. Acceleration.
At the option of Secured Party, and upon providing written notice
thereof, all principal and any unpaid interest shall become immediately due and
payable upon the occurrence of an event of default as set forth in Section 4
above, subject to the Secured Party's right to cure any default within five (5)
days. Any reasonable attorneys' fees and other expenses incurred by Secured
Party in connection with enforcing any of its rights hereunder or in a
bankruptcy filing relating to Debtor, whether a complaint is filed or not, shall
be additional indebtedness of Debtor secured by this Agreement, and shall not be
deemed a penalty.
5.1 Cure.
Debtor shall be provided a period of five (5) days to cure a
default. In the event Debtor fails to cure any default within such time period,
including the payment of all costs and expenses provided for in this Agreement
and the Note, Secured Party may immediately enforce any and all rights provided
under this Agreement and the Note.
6. Security Agreement.
6.1 Grant of Security Interest.
<PAGE>
Debtor, in consideration of the Loan, hereby grants, conveys, and
assigns to Secured Party, as security, all of Debtor's existing and future
right, title and interest in the property listed in Section 6.2 of this
Agreement, subject to existing perfected security interests. This security
interest is granted to Secured Party to secure the following: (a) the payment of
the indebtedness evidenced by the Note attached hereto as Exhibit 1, including
all renewals, extensions, and modification thereof; (b) the payment, performance
and observance of all warranties, obligations, covenants and agreements to be
paid, performed or observed by under this Agreement; and (c) the payment of all
other sums, with interest thereon, advanced or otherwise due or payable under
the terms of this Agreement.
6.2 Property.
The property subject to the security interest (the "Collateral")
is as follows:
6.2.1 Equipment.
All equipment of Debtor.
6.2.2 Miscellaneous Receivables.
All chattel paper, contract rights, commissions, warehouse
receipts, bills of lading, delivery orders, drafts, acceptances, notes,
securities and other instruments, documents, all other forms of receivables, and
all guaranties and securities therefor of Debtor.
6.2.3 Inventory and Other Tangible Personal Property.
All inventory of Debtor, including all goods, merchandise,
materials, raw materials, work in progress, finished goods, now owned or
hereafter acquired and held for sale or lease or furnished or to be furnished
under contracts or service agreements or to be used or consumed in Debtor's
business and all other tangible personal property of Debtor.
6.2.4 All General Intangibles.
All general intangibles now owned by Debtor or hereafter acquired
by Debtor.
6.2.5 After-Acquired Property.
All property of the types described in Sections 6.2.1 - 6.2.4, or
similar thereto, that at any time hereafter may be acquired by Debtor, including
but not limited to all accessions, parts, additions, and replacements.
6.2.6 Proceeds.
All proceeds, in any type or form arising from the sale or other
disposition of any of the Collateral described or referred to in Sections 6.2.1
- - 6.2.5.
6.2.7 Technology.
All technology assigned or otherwise transferred by any
subsidiary, whether a corporation or other entity, of Debtor, wherever
domiciled, evidencing such entities' ownership of the technology utilized by
Debtor.
6.3. Covenants of Debtor.
Debtor agrees and covenants, and acknowledges that Secured Party
is reasonably relying upon these agreements and covenants, as follows:
3
<PAGE>
6.3.1 Payment of Principal and Interest.
Debtor shall pay the principal and interest evidenced by the Note
from the proceeds realized from the sale of refreshment centers to the hotel
properties, and in the denominations, set forth below:
6.3.1.1 Best Western Kelowna Inn, British Columbia, Canada - 68
Model RS-5000 Refreshment Centers priced at $999.95 per unit, for a total
purchase price of $67,997;
6.3.1.2 DoubleTree Guest Suites, New York, NY - 460 Model RS-5000
Refreshment Centers priced at $999.95 per unit, for a total purchase price of
$459,977;
6.3.1.3 DoubleTree Hotel, Rosemont, Illinois - 369 Model RS-3000
Refreshment Centers priced at $1,099.95 per unit, for a total purchase price of
$405,882;
6.3.1.4 Embassy Suites Hotel, New York, NY - 463 Model RS-3000
Refreshment Centers priced at $1,199.90 per unit, for a total purchase price of
$555,554;
6.3.1.5 Hilton Times Square, New York, NY - 444 Model CC 103-LB
Refreshment Centers priced at $1,199.90 per unit, for a total purchase price of
$532,756; and/or
6.3.1.6 Marriott (JW) Miami on Brickell, Miami, FL - 300 Model
RS-5000 Refreshment Centers priced at $999 per unit, for a total purchase price
of $299,700.
6.3.2 Corporate Existence. Debtor is a corporation duly organized
and existing under the laws of the State of Nevada.
6.3.3 Corporate Authority. The execution, delivery, and
performance of this Agreement, and the issuance of the Note and Warrant has been
duly authorized, is not in contravention of law or the terms of the Debtor
articles of incorporation and bylaws, or of any indenture, agreement, or
undertaking to which Debtor is a party or by which it is bound.
6.3.4 Ownership of Collateral.
<PAGE>
Debtor is the sole owner of the Collateral and will defend the
Collateral against the claims and demands of all other persons at any time
claiming the same or any interest therein.
6.4 Intentionally Left Blank.
6.5 Removal of Collateral Prohibited.
Debtor shall not remove the Collateral from its premises, or
otherwise dispose of it, other than utilizing it in the ordinary course of
business, without the prior written consent of Secured Party.
6.6 Taxes and Assessments.
Debtor will pay or cause to be paid promptly when due all taxes
and assessments on the Collateral. Debtor may, however, withhold payment of any
tax assessment or claim if a good faith dispute exists as to the obligation to
pay so long as funds sufficient to pay the taxes and assessments are set aside
for such purpose either in cash or by surety bond issued in form of the
appropriate taxing authority.
6.7 Insurance.
Debtor shall have and maintain, or cause to be maintained,
insurance at all times with respect to all Collateral in such form, for such
periods, and underwritten by such companies as are satisfactory to Secured
Party. Debtor will promptly provide Secured Party, if requested in writing, with
the original policies or certificates of such insurance. Debtor shall promptly
notify Secured Party of any loss or damage that may occur to the Collateral.
Secured Party is hereby authorized to make proof of loss if it is not made
promptly by Debtor. All proceeds of any insurance on the Collateral shall be
held by Secured Party as a part of the Collateral. In the event of failure to
provide insurance as provided herein, Secured Party may, at its option, provide
such insurance at Debtor's expense.
6.8 Protection of Secured Party's Security.
If Debtor fails to perform the covenants and agreements contained
or incorporated in this Agreement, or if any action or proceeding is commenced
which affects the Collateral or title thereto or the interest of Secured Party
therein, including, but not limited to, eminent domain, insolvency, code
enforcement, or arrangements or proceedings involving a bankrupt or decedent,
then Secured Party may make such appearance, disburse such sums, and take such
action as Secured Party deems necessary, in its sole discretion, to protect
Secured Party's interest, including, but not limited to the following: (i)
disbursement of attorneys' fees; (ii) entry upon Debtor's property to make
repairs to the Collateral; and (iii) procurement of satisfactory insurance. Any
amounts disbursed by Secured Party pursuant to this Section 6.8, including
interest thereon, shall become additional indebtedness of Debtor secured by this
Agreement. Unless Debtor and Secured Party agree to other terms of payment, such
amounts shall be immediately due and payable and shall bear interest from the
date of disbursement at the interest rate stated in the Note. Nothing contained
in this Section 6.8 shall require Secured Party to incur any expense or take any
action.
6.9 Inspection.
Secured Party may enter Debtor's premises at any time to inspect
the Collateral, and Debtor shall cooperate with Secured Party to accommodate
such reasonable entries.
<PAGE>
6.10 Lien Not Released.
From time to time, Secured Party may, at Secured Party's option,
without giving notice to or obtaining the consent of Debtor or its successors or
assigns or of any other lienholders, without liability on Secured Party's part,
and notwithstanding a breach by Debtor of any covenant or agreement set forth in
this Agreement, extend the time for payment of said indebtedness or any part
thereof, reduce the payments thereon, release anyone liable on any of said
indebtedness, accept a renewal note or notes therefor, modify the terms and the
time of payment of said indebtedness, release from the lien of this Agreement
any part of the Collateral, take or release other or additional security,
reconvey any part of the Collateral, or join in any extension or subordination
agreement. Any actions taken by Secured Party pursuant to the terms of this
Section shall be in writing, shall not affect the obligation of Debtor or its
successors or assigns to pay the sums secured by this Agreement and to observe
the covenants of Debtor contained herein, and shall not affect the lien or
priority of lien hereof on the Collateral.
6.11 Forbearance by Secured Party Not a Waiver.
Any forbearance by Secured Party in exercising any right or
remedy hereunder, or otherwise afforded by applicable law, shall not be a waiver
of, or preclude the exercise of, any right or remedy. The acceptance by Secured
Party of payment of any sum secured by this Agreement after the due date of such
payment shall not be a waiver of Secured Party's right to either require prompt
payment when due of all other sums secured by this Agreement or to declare a
default for failure to make prompt payment. The procurement of insurance or the
payment of taxes, rents or other liens or charges by Secured Party shall not be
a waiver of Secured Party's right to accelerate the maturity of the indebtedness
secured by this Agreement, nor shall Secured Party's receipt of any awards,
proceeds or damages as provided in this Agreement operate to cure or waive any
default by Debtor in payment of sums secured by this Agreement.
6.12 Uniform Commercial Code Security Agreement.
This Agreement is intended to be a security agreement pursuant to
the Uniform Commercial Code for each of the items specified in Section 6.2 as
Collateral. Debtor hereby grants Secured Party a security interest in said
items. Debtor agrees to execute and file financing statements, as well as
extensions, renewals and amendments thereof, and reproductions of this
Agreement, and do whatever may be necessary under the applicable Uniform
Commercial Code in the state where the Collateral is located, to perfect and
continue Secured Party interest in the Collateral, all at the expense of Debtor.
The Parties agree that such financing statements will be filed in the name of
Secured Party. Debtor shall pay all costs of filing such financing statements
and any extensions, renewals, amendments, and releases thereof, and shall pay
all reasonable costs and expenses of any record searches for financing
statements requested by Secured Party. Without the prior written consent of
Secured Party, Debtor shall not create or allow to be created, pursuant to the
Uniform Commercial Code, any other security interest in the Collateral senior in
priority to that of Secured Party including replacements and additions thereto.
Upon the occurrence of an event of default, Secured Party shall have the
remedies of a secured party under the Uniform Commercial Code and, at Secured
Party's option, may also invoke any other remedy provided for in this Agreement.
In exercising any of said remedies, Secured Party may, at its sole option,
utilize an agent and may proceed against any part of the Collateral separately
or together and in any order whatsoever, without in any way affecting the
availability of Secured Party's remedies under the Uniform Commercial Code, or
of Secured Party's other remedies provided in this Agreement.
6.13 Acceleration in Case of Borrower's Insolvency.
<PAGE>
If the Debtor shall voluntarily file a petition under the Federal
Bankruptcy Act, or under any similar or successor federal statute relating to
bankruptcy, insolvency, arrangements or reorganizations, or under any state
bankruptcy or insolvency act, or file an answer in an involuntary proceeding
admitting insolvency or inability to pay debts, or if the Debtor shall be
adjudged a bankrupt, or if a trustee or receiver shall be appointed for the
Debtor's property, or if the Collateral shall become subject to the jurisdiction
of a federal bankruptcy court or similar state court, or if the Debtor shall
make an assignment for the benefit of its creditors, or if there is an
attachment, receivership, execution or other judicial seizure, then Secured
Party may, at Secured Party's option, declare all of the sums secured by this
Agreement immediately due and payable without prior notice to the Debtor, and
Secured Party may invoke any remedies permitted by this Agreement and/or the
Note. Any reasonable attorneys' fees and other expenses incurred by Secured
Party in connection with the Debtor's bankruptcy or any of the other events
described in this Section shall be additional indebtedness of the Debtor secured
by this Agreement, and shall not be deemed a penalty.
6.14 Rights of Secured Party.
6.14.1 Upon default, Secured Party may require Debtor to assemble
the Collateral and make it available to Secured Party at the place to be
designated by Secured Party which is reasonably convenient to the Parties.
Secured Party may sell all or any part of the Collateral, as reasonably
necessary to satisfy the obligations of Debtor hereunder to Secured Party, as a
whole or in parcels either by public auction, private sale, or any other
reasonable method of disposition. Nothing in this Section 6.14.1 shall be
construed to limit any of Secured Party's rights in connection with any of the
Collateral as provided herein. Secured Party may bid at any public sale on all
or any portion of the Collateral. Unless the Collateral is perishable or
threatens to rapidly decline in value or is of the type customarily sold on a
recognized market, Secured Party shall give Debtor reasonable notice of the time
and place of any public sale, or of the time after which any private sale or
other disposition of the Collateral is to be made. Notice must be provided at
least ten (10) days prior to the time of the sale or other disposition. A public
sale in the following fashion shall be conclusively presumed to be reasonable:
6.14.2 Notice shall be given at least ten (10) days before the
date of sale by publication, at least once, in a newspaper of general
circulation published in the county in which the sale is to be held;
6.14.3 The sale shall be held in a county in which the Collateral
or any part is located or in a county in which Debtor has a place of business;
6.14.4 Payment shall be in cash or by certified check immediately
following the close of the sale;
6.14.5 The sale shall be by auction, but it need not be by a
professional auctioneer; and
6.14.6 The Collateral may be sold as is and without any
preparation for sale.
6.15 Obligation to Sell Collateral.
Notwithstanding any provision of this Agreement, Secured Party
shall be under no obligation to offer to sell the Collateral. In the event
Secured Party offers to sell the Collateral, there will be no obligation to
consummate a sale of the Collateral if, in Secured Party's reasonable business
judgment, none of the offers received by it reasonably approximate the fair
value of the Collateral. In the event Secured Party
<PAGE>
elects not to sell the Collateral, Secured Party may elect to follow the
procedures set forth in the Uniform Commercial Code for retaining the Collateral
in satisfaction of the obligation of Debtor, subject to the rights of Debtor
under such procedures.
6.16 Receiver.
In addition to the rights under this Agreement, upon the
occurrence of an event of default, Secured Party shall be entitled to the
appointment of a receiver for the Collateral as a matter of right, whether or
not the apparent value of the Collateral exceeds the outstanding principal
amount of the Note, and Debtor agrees to entry of an order therefor by any court
in the State of Nevada and/or Utah upon petition therefor.
6.17 Waiver of Marshaling.
Notwithstanding the existence of any other security interest in
the Collateral held by Secured Party or by any other party, Secured Party shall
have the right to determine the order in which any or all of the Collateral
shall be subjected to the remedies provided by this Agreement. Secured Party
shall have the right to determine the order in which any or all portions of the
indebtedness secured by this Agreement are satisfied from the proceeds realized
upon the exercise of the remedies provided in this Agreement. Debtor, any party
who consents to this Agreement, and any party who now or hereafter acquires a
security interest in the Collateral and who has actual or constructive notice of
this Agreement, hereby waive any and all rights to require the marshalling of
assets in connection with the exercise of any of the remedies permitted by
applicable law or by this Agreement.
6.18 Maintenance of Collateral.
Debtor agrees to maintain the Collateral in good working order,
separate and identifiable, at all times while in its possession.
6.19 Miscellaneous.
Debtor agrees to comply with the covenants and conditions of this
Agreement. All sums disbursed by Secured Party to protect the security of this
Agreement up to the principal amount of the Note shall be treated as
disbursements pursuant to such Agreements. All such sums shall bear interest
from the date of disbursement at the rate stated in the Note, unless collection
from Debtor of interest at such rate would be contrary to applicable law in
which event such amount shall bear interest at the highest rate which may be
collected from Debtor under applicable law. In case of a breach by Debtor of the
covenants and conditions of the Agreement, Secured Party (i) may invoke any of
the rights or remedies provided in the Agreement, (ii) may accelerate the sums
secured by this Agreement and invoke the remedies provided in this Agreement, or
(iii) may do both.
7. Remedies Cumulative.
Each remedy provided in this Agreement is distinct and cumulative
to all other rights or remedies under this Agreement or afforded by law or
equity, and may be exercised concurrently, independently, or successively, in
any order.
8. Waiver of Statute of Limitations.
<PAGE>
Debtor hereby waives the right to assert any statute of
limitations as a bar to the enforcement of this Agreement or to any action
brought to enforce the Note or any other obligation secured by this Agreement.
9. Notices and Delivery.
Any notices permitted or required under this Agreement shall be
deemed given upon the date of personal delivery or forty-eight (48) hours after
deposit in the United States mail, postage fully prepaid, return receipt
requested, addressed as follows:
if to Debtor:
Gregory L. Hrncir, Esq.
RoomSystem Technologies, Inc.
390 North 3050 East
St. George, UT 84790
if to Secured Party:
James Savas
c/o Ash Capital, LLC
1400 South Foothill Blvd., Suite B-25
Salt Lake City, UT 84108
8
or at any other address as any party may, from time to time, designate by notice
given in compliance with this Section. Any deliveries required under this
Agreement must be made by personal delivery at the applicable address listed
above.
10. Indemnification.
10.1 General.
Debtor agrees to indemnify, reimburse, and hold harmless Secured
Party, or any agent of the Secured Party (Secured Party is referred to as the
"Indemnitee" throughout this Section 10) from and against all claims, damages,
losses, liabilities, demands, suits, judgments, causes of action, civil and
criminal proceedings, penalties, fines, and other sanctions, and any attorney
fees and other reasonable costs and expenses, arising out of the Debtor's
negligence or under the doctrine of strict liability (collectively "Claims"), or
relating to or arising in any manner out of:
10.1.1 this Agreement or the breach of any representation,
warranty, or covenant made by Debtor under this Agreement;
10.1.2 any issuance, offering, or sale of securities of Debtor;
and
10.1.3 any transaction, approval, or document contemplated by the
Agreement.
<PAGE>
The Parties hereto intend that this Agreement shall provide for
indemnification in excess of that expressly provided for by statute, including
but not limited to, any indemnification provided by the Debtor articles of
incorporation, its bylaws, a vote of its shareholders or disinterested
directors, or applicable law.
10.2 Definitions.
10.2.1 Expenses.
For purposes of Section 10, the term "expenses" shall mean (i)
any expense, liability, or loss, including attorneys' fees, judgments, fines,
ERISA excise taxes and penalties, and amounts paid or to be paid in settlement;
(ii) any interest, assessments, or other charges imposed on any of the items in
part (i) of this subsection; and (iii) any federal, state, local, or foreign
taxes imposed as a result of the actual or deemed receipt of any payments under
this Agreement paid or incurred in connection with investigating, defending,
being a witness in, participating in (including on appeal), or preparing for any
of the foregoing in any proceeding relating to any indemnifiable event.
10.3 Partial Indemnification.
If the Indemnitee is entitled under any provision of this
Agreement to indemnification by Debtor for a portion of expenses, but not for
the total amount of expenses, Debtor shall indemnify the Indemnitee for the
portion to which the Indemnitee is entitled.
10.4 Indemnification Payment.
The Indemnitee shall receive indemnification of expenses from
Debtor in accordance with this Agreement as soon as practicable after the
Indemnitee has made written demand to Debtor for indemnification.
9
If the Indemnitee has not received full indemnification within five (5) days
after making a demand in accordance with the terms hereof, the Indemnitee shall
have the right to enforce its indemnification rights under this Agreement by
commencing litigation in any court in the State of Nevada. Debtor hereby
consents to service of process and to appear in any such proceeding. The remedy
provided for in this Section shall be in addition to any other remedies
available to the Indemnitee in law or in equity. If requested by Indemnitee,
Debtor shall, within ten (10) business days after such request, advance to the
Indemnitee such expenses as are incurred by the Indemnitee in connection with
any claim asserted against or action brought by the Indemnitee for:
10.4.1 Indemnification of expenses or advances of expenses by
Debtor under this Agreement, or any other agreement, or under applicable law, or
under the Debtor articles of incorporation or bylaws now or hereafter in effect
relating to indemnification for indemnifiable events.
10.5 Settlement.
Debtor shall not settle any proceeding in any manner that would
impose any penalty or limitation on the Indemnitee without the express written
consent of Indemnitee. Neither Debtor nor the
<PAGE>
Indemnitee will unreasonably withhold their consent to any proposed settlement.
Debtor shall not be liable to indemnify the Indemnitee under this Agreement with
regard to any judicial award if Debtor was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of such action;
provided, however, the liability of Debtor under this Agreement shall not be
excused if participation in the proceeding by Debtor was barred by this
Agreement.
10.6 Tender by Secured Party.
In the event of any controversy or claim arising out of this
Agreement or the breach of the Agreement, Secured Party may tender a defense to
Debtor, who hereby agrees to promptly accept Secured Party's tender, so long as
Secured Party notifies Debtor within five (5) days of Secured Party's receipt of
any written instrument or pleading relating to any controversy or claim arising
out of this Agreement or the breach of this Agreement. If timely acceptance of
tender is not forthcoming, Secured Party may, at the expense of Debtor, retain
its own counsel. Debtor hereby agrees to advance any and all reasonable costs
and expenses to Secured Party in connection with Secured Party's retention of
counsel.
11. Entire Agreement.
This Agreement, the Note, the Warrant, including the Subscription
Agreement and Confidential Investor Questionnaire attached hereto as Exhibit 3,
contain the entire understanding between and among the Parties and supersedes
any prior understandings and agreements among them respecting the subject matter
of this Agreement.
12. Agreement Binding.
This Agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of the Parties hereto.
13. Amendment and Modification.
Subject to applicable law, this Agreement may be amended,
modified, or supplemented only by a written agreement signed by the Parties.
14. Attorneys' Fees.
In the event arbitration, suit or action is brought by any party
under this Agreement to enforce any of its terms, and in any appeal therefrom,
it is agreed that the prevailing party shall be entitled to reasonable
attorneys' fees to be fixed by the arbitrator, trial court, or appellate court.
15. Arbitration.
Any controversy or claim between or among the parties, including
but not limited to those arising out of or relating to this Agreement or any
agreements or instruments relating hereto or delivered in connection herewith
and based on or arising in contract or in tort, shall, at the request of any
party, be determined by binding arbitration. The arbitration shall be conducted
in Las Vegas, Nevada, in accordance with the United States Arbitration Act
(Title 9, U.S. Code), notwithstanding any choice of law provision in this
Agreement, and under the Commercial Rules of the American Arbitration
Association ("AAA"), not later than sixty (60) days after appointment of an
arbitrator. Any controversy concerning whether an issue is arbitrable shall be
determined by the arbitrator(s). The arbitrator shall have not the authority to
award
<PAGE>
punitive damages. Judgement upon the arbitration award shall be final and may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.
16. Law Governing.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Nevada.
17. Savings Clause.
If any provision of this Agreement, or the application of such
provision to any person or circumstance, shall be held invalid, the remainder of
this Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held invalid, shall not be affected thereby.
18. Titles and Captions.
All section titles or captions contained in this Agreement are
for convenience only and shall not be deemed part of the context nor effect the
interpretation of this Agreement.
19. Further Action.
The Parties hereto shall execute and deliver all documents,
provide all information and take or forbear from all such action as may be
necessary or appropriate to achieve the purposes of the Agreement, including,
but not limited to, executing such financing statements, as the Secured party
may deem necessary and appropriate to protect its interests.
20. Counterparts.
The terms of the Agreement are contractual and not merely
recital. The Agreement may be signed in one or more counterparts, each of which
shall be deemed an original. Furthermore, facsimile copies shall be deemed the
same as originals. The Agreement shall be deemed fully executed and effective
when all Parties have executed at least one of the counterparts, even though no
single counterpart bears all such signatures.
IN WITNESS WHEREOF, the Parties have executed this Agreement as
of the date first written above.
SECURED PARTY
By: /s/
-----------------------------------------
Name:
-----------------------------------------
Title: Managing Director, Ash Capital
-----------------------------------------
<PAGE>
DEBTOR
By: /s/ Steven L. Sunyich
-----------------------------------------
Steven L. Sunyich
Chief Executive Officer
<PAGE>
Exhibit 10.17
LIST OF AGENCY SERVICES AND FEES
This LETTER OF AGREEMENT is entered into by and between Hall
Communications, Inc., a Nevada Corporation ("Agency") and eRoom System
Technologies, Inc., a Nevada Corporation ("Client"), effective March 30, 2000
through March 30, 2001.
AGENCY SERVICES
Agency agrees to act to act as the "Advertising and Marketing Agency of Record"
for the Client under the terms of this agreement. The following is a list of
the services that the Agency will provide to the client.
1.0 DESIGN/CREATIVE. Agency will develop and implement the Client's
creative/design related to advertising, marketing and/or promotion. Items to be
included:
a. Company brochure(s) for customers and potential customers
b. New corporate name development
c. Logo and corporate identity package including letterhead, business
cards, etc.
d. Corporate information packets
e. Office signage
f. Trade show booth and collateral materials
g. Development of compact disc (CD) with company information
h. Development of corporate video
i. Web site design
j. Presentation design
k. Product Design
l. Internal Corporate Communications
m. Visual and Graphic Standards Guide
There will be outside costs associated with the above listed items (1.0 a-m).
2.0 IPO PACKAGING. Agency to design any materials that will be necessary
for IPO road show and investor meetings. There will be some overlap between the
items in sections 1.0 and 2.0. However, the Agency will ensure that the Client
has the appropriate materials, including:
a. Road show collateral materials
b. Road show presentation materials
c. Road show video
3.0 PLANNING AND STRATEGY. With the help of the Client, the Agency will
develop the overall message and marketing direction of the Client. This will
include, but will not be limited to, a "Strategic Advertising and Marketing
Plan" for the Client. The goal is to help identify what the company does, how
it does it, from whom it does it, how it will be done in the future and how all
of this will be communicated to the intended audiences. In addition we will
help identify:
a. Main consumer benefits
b. Marketing Goals and Objective
c. Marketing Strategies
d. Target Market Definition
e. Geographic or Category Considerations
<PAGE>
FEES
4.0 AGENCY FEES. Client agrees to issue the Agency a warrant to purchase
166,667 shares of common stock at $3.60 per share, and pay a total of
$219,500.00 in the form of cash, based on the following schedule:
PHASE ONE (MONTHS 1-4): Client to issue the Agency a warrant to purchase
166,667 shares of common stock at $3.60 per shares
PHASE TWO (MONTHS 5-8): Client to pay Agency $174,750.00 in cash
($43,687.50 per month).
PHASE THREE (MONTHS 9-12): Client to pay Agency $174,750.00 in cash
($43,687.50 per month).
5.0 OUTSIDE EXPENSES. All outside expenses incurred by the Agency on
behalf of the Client, estimated at $450,500.00, will be billed to the Client in
addition to the above Agency Fees. All expenses will be authorized by the
Client, and invoiced at the end of the activity month. The client agrees to pay
Agency invoices within 30 days of invoice date.
6.0 JOB ESTIMATES. Agency agrees to provide the Client with job estimates
prior to starting every project/campaign. Client approval of the estimate is
the Agency's authorization to proceed with the project/campaign.
7.0 WARRANTS. Agency will be issued a warrant to purchase 166,667 shares
of common stock, exercisable though December 31, 2001. Client will offer Agency
one demand right registration, exercisable any time following the one year
anniversary of the IPO (subject to SEC/NASDAQ approval).
8.0 OTHER. Throughout the life of this agreement between the Agency and
the Client, there may be other business opportunities that arise. Agency and
Client agree that this Letter of Agreement may be amended from time to time to
include other services as long as both Agency and Client agree to the terms.
SIGNATURES
The following authorized signatures verify that both parties have agreed to all
terms of this agreement, effective as of the date listed in the first paragraph
of this agreement.
HALL COMMUNICATIONS, INC.
By: /s/ Mick Hall Date: 3/30/00
-------------------------------- --------------------------------
Mick Hall, President/CEO
EROOM SYSTEM TECHNOLOGIES, INC.
By: /s/ Steven Sunyich Date: 3/30/00
-------------------------------- --------------------------------
Steven Sunyich, CEO
<PAGE>
Exhibit 10.18
HOTEL REVENUE SHARING LEASE AGREEMENT
THIS HOTEL REVENUE SHARING LEASE AGREEMENT (this "Agreement" or "Hotel
Revenue Sharing Lease Agreement") is dated *3 and entered into by and between
RoomSystem Technologies, Inc., ("RoomSystem") a Nevada corporation having its
principal office and place of business at 3770 Howard Hughes Parkway, Suite 175,
Las Vegas, Nevada, 89109 and *1 ("Hotel"), a *9 corporation, having its office
and place of business at *2.
IN CONSIDERATION of the mutual agreements set forth hereinafter, the
parties agree as follows:
1. Leased Equipment. This Agreement and each Equipment Schedule (as
defined below) entered into under this Agreement shall describe the equipment
leased under this Agreement and shall be subject to all terms and conditions of
this Agreement as such Agreement may from time-to-time be amended. Each
Equipment Schedule to be entered into between RoomSystem and Hotel pursuant to
this Agreement shall be in the form annexed hereto as Attachment I (the
"Equipment Schedule"). Each Equipment Schedule shall be enforceable according to
the terms and conditions contained therein and such terms and conditions are
incorporated into this Agreement. Capitalized terms not otherwise defined in
this Agreement shall have the meanings ascribed to such terms in each Equipment
Schedule. In the event of a conflict between the terms of this Agreement and any
Equipment Schedule, the terms of the Equipment Schedule shall prevail with
respect to that Equipment Schedule. RoomSystem agrees to place with Hotel, and
Hotel agrees to accept and lease from RoomSystem, in accordance with the terms
and conditions herein, the equipment and features together with all
replacements, parts, repairs, additions, attachments and accessories related
thereto (collectively called the "Equipment" and individually called a "Placed
Item") described in each executed Equipment Schedule. Hotel shall have no right,
title or interest in the Equipment, except as expressly set forth in this
Agreement. RoomSystem and Hotel shall have no obligation hereunder until the
execution and delivery of an Equipment Schedule by RoomSystem and Hotel.
2. Term Payments and Termination. The term (the "Term") of this Agreement
shall commence on the date set forth above and shall continue thereafter so long
as any Equipment Schedule entered into pursuant to this Agreement remains in
effect.
The lease term and lease payment for the Equipment shall be as stated
herein and in the respective Equipment Schedule(s). At the end of such lease
term provided no Event of Default has occurred and is continuing, Hotel shall
have the option exercisable on no less than 135 days prior written notice to
RoomSystem to (A) purchase the Equipment for its then Fair Market Value (as
hereinafter defined), or (B) renew the Equipment Schedule under mutually
acceptable terms, or (C) terminate the Equipment Schedule according to its
terms. Upon payment in full of the amount required to exercise Hotel's option to
purchase the Equipment, RoomSystem shall transfer its right, title and interest
in the Equipment to Hotel "AS-IS WHERE IS," without any express or implied
representations or warranties whatsoever concerning the condition of the
Equipment. If, upon the termination of the applicable Equipment Schedule as to
any Placed Item, Hotel fails or refuses to return and deliver possession of
Placed Item to RoomSystem pursuant to Section 15 hereof within ten (10) business
days after the expiration of the term of the Equipment Schedule, in addition to
all other rights and remedies available to RoomSystem, Hotel shall be liable to
RoomSystem for the Fair Market Value of such Placed Items until returned to
RoomSystem as well as all other damages incurred by RoomSystem.
All Payments (hereinafter defined) shall, unless otherwise directed by
RoomSystem in writing, be made to RoomSystem on the Payment Date (hereinafter
defined) by electronic transfer of funds, and Hotel shall execute all
authorizations necessary for such electronic transfers. If the Payment Date is
not a business day, Payments for such period shall be due on the next business
day. Any Payment not made by the related Payment Date shall be subject to a late
payment fee of ten percent (10%) of the outstanding Payment amount.
3. Acceptance, Warranties and Limitation of Liability. Hotel shall execute
and deliver to RoomSystem a certificate of acceptance (the "Certificate") in the
form of Exhibit A to the Equipment Schedule with respect to each Placed Item
installed at the Hotel, acknowledging its acceptance of each such Placed Item.
Hotel represents and agrees that, as of the date each Placed Item is accepted
pursuant to a Certificate ("Acceptance Date"), such Certificate shall be
conclusive evidence that each Placed Item is of a size, design, capacity and
manufacture selected by Hotel and that Hotel has inspected such Placed Item,
found it to be in good order, and unconditionally accepts such Placed Item(s),
subject to any right or remedy Hotel may have against the manufacturer or
supplier thereof. Notwithstanding any relationship between RoomSystem and any
manufacturer, supplier or Servicer of the Equipment, RoomSystem shall have no
liability to Hotel for any claim, loss or damage caused or alleged to be caused
directly, indirectly, incidentally or consequentially by the Equipment, by any
inadequacy or deficiency thereof or, defect therein, by any incident whatsoever
in connection therewith, or in any way related to or arising out of this
Agreement whether arising
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in contract, strict liability, negligence or otherwise. Hotel shall not assert
any claims, counterclaims, or defenses against RoomSystem for consequential,
special or indirect damages, or for loss of use or loss of profits. RoomSystem
makes no express or implied warranties of any kind, including those of
merchantability, durability, or fitness for a particular purpose or use with
respect to the Equipment and expressly disclaims the same. Hotel understands and
agrees that: (A) RoomSystem, Inc. is the supplier of the Equipment; (B) Article
2A of the Uniform Commercial Code (or any state law equivalent) entitles Hotel
to enforce against the supplier or manufacturer of the Equipment warranties made
about the Equipment to RoomSystem; and (C) That Hotel may communicate with the
supplier or manufacturer and receive a copy of the promises, warranties, or
disclaimers made. Hotel will be entitled to the benefit of any applicable
manufacturer's warranties, and to the extent assignable, such warranties are
hereby assigned by RoomSystem for the benefit of Hotel, and Hotel shall take all
reasonable action to enforce such warranties where available to Hotel.
4. Assignment, Obligation to Make Payments Unconditional. RoomSystem may
assign or sell all or a portion of its right, title and interest in and to the
Equipment, any Placed Item, this Agreement, and/or any Equipment Schedule,
and/or grant a security interest in the Equipment, any Placed Item, this
Agreement, and/or any Equipment Schedule, to any other party (any such party is
referred to herein as "Assignee"); provided, however, any such assignment or
sale shall not relieve RoomSystem of any of its obligations hereunder. Hotel
hereby: (A) Consents to such sales, assignments and/or grants; (B) Agrees to
execute promptly and deliver such further acknowledgments, agreements and other
instruments as may be reasonably requested by RoomSystem or any Assignee to
effect such assignments and/or grants; and (C) Agrees to comply fully with the
terms of any such assignments and/or grants. In the event of an assignment,
Assignee shall have all rights and benefits of RoomSystem under this Agreement,
but Assignee shall not be obligated to perform the obligations of RoomSystem
hereunder unless Assignee expressly agrees to do so in writing. Hotel agrees
that its obligation to pay all Payments and other sums payable hereunder and the
rights of RoomSystem and Assignee in and to such Payments, are absolute and
unconditional and are not subject to any abatement, reduction, set off, defense,
counterclaim or recoupment due or alleged to be due, to or by reason of, any
past, present or future claims which Hotel may have against RoomSystem,
Assignee, any manufacturer, supplier, seller or Servicer, defined hereinafter,
of the Equipment, or against any person for any reason whatsoever. Hotel shall
have no right to assign this Agreement, any Equipment Schedule, or the
Maintenance Agreement, or to sublease the Equipment without the express prior
written consent of RoomSystem, which consent shall not be unreasonably withheld.
5. Installation, Maintenance and Repair. Hotel, at its expense, shall be
responsible for the delivery, installation, de-installation, redelivery,
maintenance and repair of the Equipment, all of which shall be effected by the
Servicer (defined in this paragraph) or such other party acceptable to
RoomSystem. Hotel agrees, at all times during the Term of this Agreement, at its
sole expense, to keep the Equipment in good repair, condition and working order,
and to furnish all parts, mechanisms or devices which may be required in the
course of so doing. Hotel will at all times during the Term of this Agreement,
maintain in force a Hotel Installation, Maintenance and License Agreement (the
"Maintenance Agreement"), covering the Equipment with the manufacturer or
supplier of the Equipment, or such other party as may be acceptable to
RoomSystem (such party the "Servicer"). RoomSystem or Assignee will have the
right, but not the obligation, to inspect the Equipment during reasonable
business hours. Hotel shall provide Servicer access to the Equipment to install
at no charge to Hotel engineering changes which RoomSystem or Servicer deems
necessary to keep the Equipment at current engineering levels. As a material
inducement for RoomSystem to enter into this Agreement with Hotel on a "revenue
sharing basis" Hotel shall:
(A) Purchase and maintain an inventory level of Merchandise so as to
maximize the revenue generating capability of the Equipment;
(B) Review the "restocking report" and inspect each Placed Item which
has been used within one (1) day after a guest has checked out of the Hotel
premises and prior to allowing the room to be occupied by a new guest, but not
less than once every month;
(C) Determine during each such inspection whether: (i) such Placed Item
requires refilling of Merchandise to reach full capacity; (ii) such Placed Item
is ready for the next guest as outlined in the operation and procedures manual
provided by Servicer (the "Manual"); and/or (iii) any Merchandise is missing
from a Placed Item and not reported as a sale, and shall then record missing
Merchandise as a sale to any guest's folio as outlined in the Manual;
(D) Fully stock to at least minimum restock level each Placed Item with
Merchandise prior to allowing the room to be occupied by a new guest;
(E) Provide all point-of-sale and printed menus as required by
Servicer to maximize sales volumes;
(F) Provide and maintain the necessary dedicated telephone lines and
internet access, if available, at Hotel's sole expense, and to provide a MATV
and/or telephone system that meets the specifications of Servicer
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permitting communication of data between the Equipment, the required computer to
operate the Equipment (the "System") and Servicer's (or its affiliates) central
office;
(G) Provide grounded outlets within six feet (6'), and a MATV connector
or RJ-45 direct-connect socket within twelve feet (12') of the location of each
Placed Item in each guest room on the Hotel premises (the "Premises");
(H) Be responsible for the unloading of the Equipment upon delivery and
promptly placing the Equipment into the guest rooms upon arrival;
(I) Take all actions and pay all costs necessary to cause the System to
interface with Hotel's computer system;
(J) During the Term of this Agreement, permit the employees and/or
representatives of RoomSystem or Servicer to stay as a guest in the Hotel, in a
standard double occupancy room, free of charge for room and reasonable board,
for a total of three (3) days per Contract Year (as hereinafter defined) when
visiting the Hotel for the purpose of inspecting the Equipment, and at other
times for a total of five (5) days per Contract Year at a rate equal to fifty
percent of the corporate discount room rate, subject to availability, upon at
least one days' prior notice to Hotel; provided, however, such room and board
shall not include long distance phone calls, use of personal laundry valet,
in-room movies, gift shop purchases, alcoholic beverages, or any other charges
other than room and reasonable board;
(K) Remove all vending machines from the floors that might compete
with the Equipment; and
(L) Perform all of the above obligations in a manner satisfactory to
RoomSystem.
6. Representations and Warranties. Hotel represents and warrants for the
benefit of RoomSystem and any Assignee (as defined hereinafter) and if requested
by RoomSystem will provide an opinion of counsel and other supporting documents
reasonably requested by RoomSystem to the effect that, at the time of execution
of this Agreement and of each Equipment Schedule:
(A) Hotel is a legal entity, duly organized, validly existing and in
good standing under the law of the jurisdiction where the Equipment will be
located and has adequate power to enter into and perform this Agreement and each
Equipment Schedule and Maintenance Agreement executed hereinafter;
(B) This Agreement and each Equipment Schedule and Maintenance
Agreement executed hereinafter has been duly authorized, executed and delivered
by Hotel and together constitute a valid, legal and binding agreement of Hotel,
each enforceable in accordance with its terms;
(C) The entering into and performance of this Agreement and each
Equipment Schedule and Maintenance Agreement executed hereinafter will not
violate any provision of Hotel's articles of incorporation or bylaws, and to the
best of Hotel's knowledge, will not violate any judgment, order, or result in
any breach of, or constitute a default under, or result in the creation of any
lien, charge, security interest or other encumbrance upon any assets of Hotel or
on the Equipment of this Agreement pursuant to any instrument to which Hotel is
a party or by which it or its assets may be bound pursuant to any law or
regulation applicable to Hotel;
(D) To the best of Hotel's knowledge there are no actions, suits or
proceedings pending or, threatened, before any court, administrative agency,
arbitrator or government body which will, if determined adversely to Hotel,
materially adversely affect its ability to perform its obligations under this
Agreement, any Equipment Schedule or the Maintenance Agreement, executed
hereinafter or any related agreement to which Hotel is a party;
(E) To the best of Hotel's knowledge, Hotel is not in any material
default under any loan or lease agreement; and
(F) That all financial information and other information furnished to
RoomSystem or any other party in connection with this Agreement was, at the time
of delivery, true and correct in all respects; and that there has been no
material adverse change with respect to such financial information from the date
of delivery by the Hotel to the date of this Agreement.
7. Risk of Loss and Damage.
(A) Hotel agrees to bear the entire risk of loss with respect to any
damage, destruction, loss, or theft of the Equipment and any Placed Item,
whether insured or not, whether such loss is partial or complete and from any
cause at all, whether or not through any default or neglect of Hotel (except if
such damage, destruction, loss or theft arises from the gross negligence or
willful misconduct of RoomSystem) from the Acceptance Date, until the later of
the date such Placed Item is removed from the Hotel by RoomSystem or thirty (30)
days after such Placed Item is returned pursuant to Section 15 hereof. Except as
provided in this Section 7, no such event shall relieve Hotel of its obligation
to make Payments hereunder.
(B) If any Placed Item is damaged and capable of repair, Hotel must
promptly notify RoomSystem, and within sixty (60) days of such damage shall, at
Hotel's expense, cause such repairs to be made as are necessary to return such
Placed Item to its condition prior to such damage.
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(C) In the event any Placed Item is destroyed, damaged beyond repair,
lost or stolen, (an "Event of Loss"), Hotel must promptly notify RoomSystem and
Assignee and pay to RoomSystem or Assignee, as the case may be, on the second
Payment Date following the Event of Loss, an amount equal to the Manufacturer's
List Price (as defined in the relevant Equipment Schedule) and all Payments
accrued on any such Placed Item up to such second Payment Date. Upon payment of
such amounts in full, Hotel's obligation to pay any further Payments will cease
with respect to such Placed Item(s) (but not with respect to any of the
remaining Equipment) and Hotel will be entitled to receive any insurance
proceeds or other recovery received by RoomSystem or Assignee in connection with
such Event of Loss.
8. Insurance. Hotel, at its sole expense, shall insure the Equipment
against all risks and in such amounts as RoomSystem reasonably requires (but not
less than the aggregate Manufacturer's List Price, as defined in the relevant
Equipment Schedule), of all Placed Items set forth in the Equipment Schedule(s)
with carriers reasonably acceptable to RoomSystem and shall maintain a loss
payable endorsement in favor of RoomSystem and Assignee affording them such
additional protection as they reasonably require; and shall maintain liability
insurance reasonably satisfactory to RoomSystem. Such insurance policies shall
insure against, among other exposures, bodily and personal injury, property
damage liabilities, and other risks customarily insured against by Hotel on
equipment owned by Hotel. All such insurance policies must name RoomSystem,
Hotel and Assignee as insured and loss payees, and must provide that such
policies may not be canceled or altered without at least thirty (30) days prior
written notice to RoomSystem and Assignee. Each insurer is hereby authorized and
directed to make payment for any Loss directly to RoomSystem or its Assignee. If
Hotel does not provide RoomSystem or its Assignee evidence of insurance
acceptable to RoomSystem or its Assignees, RoomSystem has the right, but not the
obligation, to obtain insurance covering the Equipment from an insurer of
RoomSystem' choice. RoomSystem may add the costs of acquiring and maintaining
such insurance and all fees for RoomSystem' services in placing and maintaining
such insurance (collectively, "Insurance Charge") to the Payments due from Hotel
under this Agreement. Hotel will pay the Insurance Charge in equal installments
allocated to the remaining Payments (plus interest on such allocation at 1.5%
per month or, if less, the maximum rate allowed by law). If RoomSystem purchases
insurance, Hotel will cooperate with RoomSystem' insurance agent with respect to
the placement of insurance and the processing of claims. Nothing in this
Agreement will create an insurance relationship of any type between RoomSystem
or its Assignee and any other person. Hotel acknowledges that RoomSystem and its
Assignee are not required to secure or maintain any insurance, and RoomSystem
and its Assignee will not be liable to Hotel if RoomSystem or its Assignee
terminate any insurance coverage that RoomSystem or its Assignee arrange. If
RoomSystem or its Assignee replace or renew any insurance coverage, RoomSystem
or its Assignee are not obligated to provide replacement or renewal coverage
under the same terms, cost, limits or conditions of the previous coverage.
9. Indemnity. Hotel agrees to indemnify, hold harmless and defend,
RoomSystem, Assignee and Servicer and any of their officers, directors or
employees and their successors and assigns (all such parties the "Indemnified
Parties") from and against any and all claims, demands, actions, suits,
proceedings, costs, expenses, damages and liabilities, at law or in equity,
whether based on a theory of contract, negligence, strict liability or
otherwise, including reasonable attorneys' fees related thereto, arising out of,
connected with, or resulting from, this Agreement, any Equipment Schedule
executed hereunder, the Maintenance Agreement or the Equipment, including
without limitation, the manufacture, selection, purchase, delivery, possession,
condition, use, lease, operation or return thereof, or any defects in the
Equipment, except to the extent a claim has arisen from such Indemnified Party's
own gross negligence or willful misconduct (as opposed to any vicarious
liability). Hotel's obligations hereunder will survive the expiration of this
Agreement with respect to acts or events occurring or alleged to have occurred
prior to the return of the Equipment to RoomSystem at the end of the Term.
10. Liens and Taxes. RoomSystem owns and holds title to the Equipment.
Hotel will, at its sole expense, keep the Equipment free and clear of all
levies, liens and encumbrances. Hotel will declare and pay to the appropriate
governmental authorities when due all license fees, registration fees,
assessments, charges and taxes, whether municipal, state or federal (foreign and
domestic), including but not limited to, sales and excise taxes, and penalties
and interest with respect thereto, excluding, however, any use or property taxes
or any taxes measured solely by RoomSystem' net income. Hotel shall provide
evidence of any payment hereunder upon request of RoomSystem. Hotel's
obligations hereunder will survive the expiration of this Agreement with respect
to liens or taxes accruing or attaching or alleged to have accrued or attached
prior to the return of the Equipment to RoomSystem at the end of the term of the
applicable Equipment Schedule(s).
11. Hotel's Failure to Perform. After the occurrence of an Event of
Default (as described hereinafter), RoomSystem has the right, but not the
obligation, and without releasing Hotel from any obligation hereunder, to make
or do the same, to pay, purchase, contest or compromise any encumbrance, charge
or lien which, in the reasonable judgment of RoomSystem, appears to affect the
Equipment or this Agreement and, in exercising any such rights, incur
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any liability and expend whatever amount in RoomSystem' reasonable discretion
RoomSystem may deem necessary therefor. All sums so incurred or expended by
RoomSystem shall be, without demand, immediately due and payable by Hotel, shall
be considered Payments hereunder, and will bear interest at the lesser of 1.50%
per month or the highest interest rate legally permissible.
12. Equipment is Personal Property; Location of Equipment. Hotel covenants
and agrees that the Equipment is, and will at all times be and remain, personal
property of RoomSystem or Assignee. If requested by RoomSystem, Hotel will
obtain, prior to delivery of any Placed Item, a certificate in a form
satisfactory to RoomSystem from all parties with an interest in the Premises
wherein the Equipment may be located, waiving any claim with respect to the
Equipment and other items reasonably requested by RoomSystem or Assignee. Hotel
will neither move any Placed Item nor permit any Placed Item to be moved from
the address set forth in the applicable Equipment Schedule without RoomSystem'
advance written consent.
13. Designation of Equipment Ownership. If at any time during the term
hereof, Hotel is supplied with labels, plates or other markings stating that the
Equipment is owned by RoomSystem or is subject to any interest of Assignee,
Hotel agrees to affix and keep the same displayed on the Equipment, provided
however, that such placement shall not be obtrusive to users of the Equipment
while installed at the Hotel. Hotel agrees that this Agreement is a true lease.
However, as a precaution in the event (and only to the extent) the transactions
underlying this Agreement are deemed to be a lease intended for security, Hotel
hereby grants RoomSystem and Assignees a first priority purchase money security
interest in the Equipment. Hotel agrees to execute and file Uniform Commercial
Code financing statements and any and all other instruments necessary to perfect
(in RoomSystem' opinion) RoomSystem' or Assignee's interest in this Agreement,
any Equipment Schedule(s), the Equipment or the payments due hereunder.
RoomSystem may file a copy of this Agreement and appropriate Equipment
Schedule(s) as a financing statement.
14. Use. Hotel shall use the Equipment in a careful and proper manner in
conformance with RoomSystem', manufacturer's, supplier's and Servicer's
specifications and shall comply with, and conform to, all federal, state,
municipal and other laws, ordinances and regulations in any way relating to the
possession, use or maintenance of the Equipment.
15. Surrender of Equipment. Upon the expiration or earlier termination of
each Equipment Schedule with respect to any Placed Item, Hotel shall: (A) make
all Payments due to RoomSystem through and including such termination or
expiration date; and (B) unless Hotel has paid RoomSystem in cash the Fair
Market Value of the Equipment, return the same to RoomSystem in good repair,
condition and working order, ordinary wear and tear resulting from proper use
thereof alone excepted. Such return shall be effected promptly by making the
Equipment available to RoomSystem or such other party designated by RoomSystem.
Upon return, all components of the Equipment shall be clean, and shall include
all instruction manuals and operating software. All costs of replacing missing
components and repairing non-working components shall be borne by Hotel. At
Hotel's option, RoomSystem shall clean the returned equipment (or cause it to be
cleaned), the reasonable costs of which shall be paid by Hotel.
The deinstallation of the Equipment shall be done in a manner resulting in
no harm or damage to the Equipment. RoomSystem shall have the sole right to make
all the arrangements for (A) the transportation of each Placed Item to and the
deinstallation of each Placed Item at the equipment location stated in the
applicable Equipment Schedule, and (B) the discontinuance, disassembly, packing
and transportation of each Placed Item from the equipment location to a location
of RoomSystem' choice within the United States upon the termination of the
applicable Equipment Schedule (by expiration or otherwise) as to such Placed
Item. Hotel shall pay all costs of deinstallation, disassembly, packing and
transportation of the Equipment.
16. Default. The occurrence of any of the following events, among others,
shall constitute an event of default ("Event of Default"): (A) The failure of
RoomSystem to receive any Payment on the date on which it is due which failure
is not cured within five (5) days after notice thereof from RoomSystem or
Assignee; (B) The failure by Hotel to perform or observe any other term,
covenant or condition of this Agreement or any Equipment Schedule or any
Maintenance Agreement, which is not cured within thirty (30) days after notice
thereof from RoomSystem or Assignee; (C) Any affirmative act of insolvency by
Hotel, or the filing by Hotel of any petition or action under any bankruptcy,
reorganization, insolvency arrangement, liquidation dissolution or moratorium
law, or any other law or laws for the relief of, or relating to debtors; (D) The
filing of any involuntary petition against Hotel under any bankruptcy,
reorganization, insolvency arrangement, liquidation, dissolution or moratorium
law for the relief of or relating to debtors which is not dismissed within sixty
(60) days thereafter, or the appointment of any receiver, liquidator or trustee
to take possession of any substantial portion of the properties of Hotel, unless
the appointment is set aside or ceases to be in effect within sixty (60) days
from the date of said filing or appointment; (E) The subjection of a substantial
part of Hotel's property or any Placed Item to any levy, seizure, assignment or
sale for or by any creditor or governmental agency; (F) Any representation or
warranty made by Hotel in this Agreement or in any Equipment Schedule or in any
document furnished by Hotel to RoomSystem or Assignee in
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<PAGE>
connection with this Agreement or any Equipment Schedule or with respect to the
acquisition or use of the Equipment shall be untrue in any material respect at
any time; (G) The default by Hotel under any other lease or loan agreement which
materially and/or adversely affects Hotel's ability to perform its obligations
under this Agreement; or (H) if any Placed Item is sold or has a lien or
encumbrance placed upon it by someone other than RoomSystem or Assignee.
17. Remedies. Upon the happening of any Event of Default, RoomSystem or
Assignee may do one or more of the following:
(A) Require Hotel, and Hotel shall, upon demand of RoomSystem, on the
next Payment Date following such demand, pay RoomSystem or Assignee, as
liquidated damages and not as a penalty, an amount equal to the Liquidated
Damage Value multiplied by 1.2, together with any Payments then due and owing by
Hotel hereunder, as well as all costs and expenses owed under this Agreement,
including commissions, legal fees and disbursements (in-house or otherwise) and
other expenses incurred by RoomSystem as a result of the Event of Default and
the exercise of RoomSystem' remedies with respect thereto (all such amounts
collectively the "Default Value"), plus interest on the Default Value at ten
percent (10%) (or such lesser amount allowed by law);
(B) RoomSystem (or its representative) may, without notice to or demand
upon Hotel, take possession of the Equipment and lease and/or sell the same, or
any portion thereof, in such manner or amount, and to such entity as RoomSystem,
in RoomSystem' discretion shall elect. If RoomSystem elects to sell or lease the
Equipment, RoomSystem may do so at a public or private sale or lease and upon
notice to Hotel, which notice will be deemed to be commercially reasonable if
the time and place of any public sale, lease or other intended disposition or
the time after which any private sale, lease or other intended disposition is to
be made shall be sent by first class, certified or registered mail to Hotel no
later than ten (10) days prior to such proposed sale, lease or other
disposition. The proceeds of such sale or lease will be applied by RoomSystem
(i) first, to pay RoomSystem an amount equal to the Default Value; and (ii)
second, to reimburse Hotel for the Default Value to the extent previously paid
by Hotel. Any surplus remaining thereafter will be retained by RoomSystem. Hotel
shall remain responsible for any outstanding balance of the Default Value after
application of any proceeds received from such sale or lease of the Equipment;
(C) Take possession of the Equipment and hold and keep idle the same or
any portion thereof;
(D) Convert the Equipment to a direct credit card billing system, or
disable the Equipment;
(E) Cancel or terminate this Agreement or any and all other agreements
between Hotel and RoomSystem (or its affiliates).
(F) RoomSystem (or its representative) may, without notice to or demand
upon Hotel, shut the system down until the default is cured. During the time the
system is shutdown, hotel shall pay downroom fees for all the installed
Equipment. Such payment shall be made even in the event of a dispute. In
addition, a return to service fee of $1,000 shall apply to turn system back on.
The exercise of any of the foregoing remedies by RoomSystem will not
constitute a termination of this Agreement or any Equipment Schedule unless
RoomSystem so notifies Hotel in writing. No remedy referred to in this Section
17 is intended to be exclusive, but each shall be cumulative and in addition to
any other remedy provided herein available to RoomSystem at law or in equity.
18. Miscellaneous.
(A) Effect of Waiver. No delay or omission to exercise any right or
remedy accruing to RoomSystem or any Assignee upon any breach or default of
Hotel will impair any such right or remedy or be construed to be a waiver of any
such breach or default; nor will a waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval on the part of RoomSystem or
any Assignee of any breach or default under this Agreement, any Equipment
Schedule or any Maintenance Agreement or of any provision or condition hereof or
thereof, must be in writing specifically set forth.
(B) Notices. Any notice required or permitted to be given by the
provisions hereof must be in writing and will be conclusively deemed to have
been received by a party hereto on the day it is delivered to such party at the
address indicated below (or at such other address as such party specifies to the
other party in writing) or, if sent by registered or certified U.S. mail, on the
fifth business day after the day on which mailed, addressed to such party at
such address:
If to RoomSystem: RoomSystem Technologies, Inc., 3770 Howard
Hughes Parkway, Suite 175, Las Vegas, NV 89109;
Facsimile 702-792-2403
If to Hotel: As set forth in the applicable Equipment Schedule
With a copy to: All parties listed in the Installation,
Maintenance and License Agreement
(C) Attorneys' Fees and Costs. In the event of any action at law or
suit in equity in relation to this Agreement, any Equipment Schedule or
Maintenance Agreement, the prevailing party will be entitled to recover from the
non-prevailing party attorneys' fees and costs.
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(D) Applicable Law, Jurisdiction and Venue. This Agreement and
Equipment Schedule(s) shall be governed by, and construed in accordance with,
the laws of the state of Nevada, without regard to principles of conflicts of
law. RoomSystem and Hotel hereby consent to jurisdiction and venue in any state
or federal court in the state of Nevada and hereby waive any objections that
jurisdiction or venue in any such court is not proper.
(E) Security Interest. No security interest in this Agreement, any
Equipment Schedule, or any Maintenance Agreement may be granted by Hotel without
RoomSystem' consent.
(F) Financial Statements. Hotel agrees to furnish promptly, or cause to
be furnished, to RoomSystem and Assignee within one hundred twenty (120) days of
the end of each fiscal year, financial statements of Hotel prepared in
accordance with generally accepted accounting principles, together with such
other financial and related information respecting the Hotel or the Equipment as
RoomSystem or Assignee may from time to time reasonably request.
(G) Entire Agreement. RoomSystem and Hotel acknowledge that there are
no agreements or understandings, written or oral, between RoomSystem and Hotel
with respect to the Equipment, other than as set forth herein and in each
Equipment Schedule and that this Agreement and each Equipment Schedule contain
the entire agreement between RoomSystem and Hotel with respect thereto. Neither
this Agreement, nor any Equipment Schedule may be altered, modified, terminated
or discharged except by a writing signed by the party against whom such
alteration, modification or discharge is sought.
(H) Severability. Any provision of this Agreement or any Equipment
Schedule prohibited by, or unlawful or unenforceable under, any applicable law
in any jurisdiction shall be ineffective as to such jurisdiction without
invalidating the remaining provisions of this Agreement; provided, however, that
to the extent that the provisions of any such applicable law can be waived, they
are hereby waived by Hotel and RoomSystem.
(I) Non-specified Features. If the Equipment delivered pursuant to any
Equipment Schedule contains any features not specified therein, Hotel grants
RoomSystem, at RoomSystem' option and RoomSystem' expense, the right to remove
or deactivate any such features. Such removal or deactivation shall be performed
by the RoomSystem or another party reasonably acceptable to RoomSystem, at a
time convenient to Hotel, provided that Hotel shall not unreasonably delay the
removal or deactivation of such features.
(J) Quiet Enjoyment. Provided that no Event of Default has occurred or
is continuing hereunder and except as provided herein or in the Maintenance
Agreement, RoomSystem, Assignee or their agents or assigns shall not interfere
with Hotel's right of quiet enjoyment and use of the Equipment.
(K) Alterations. Hotel shall be permitted with RoomSystem' prior
written consent and at Hotel's own expense to make alterations or improvements
to the Equipment which are readily removable without causing material damage to
the Equipment and do not adversely affect any manufacturer's warranties with
respect to such Equipment. In the event such alterations are not removed at the
end of the Term, such alterations shall become the property of RoomSystem.
(L) Headings. Section headings are for convenience only and shall not
be construed as part of this Agreement.
(M) Successors. This Agreement shall inure to and bind the permitted
successors and assigns of the respective parties.
(N) Usage. In this Agreement the singular includes the plural and the
plural the singular. References to agreements and other contractual instruments
shall be deemed to include all subsequent amendments and other modifications and
supplements thereto, but only to the extent such amendments and other
modifications and supplements are not prohibited by the terms of this
Agreements. References to any entities include their respective permitted
successors and assigns.
(O) Finance Lease Status. Hotel and RoomSystem agree that this
Agreement is intended to be a "finance lease" as defined in Article 2A of the
Uniform Commercial Code (or any equivalent state law). HOTEL WAIVES ANY AND ALL
RIGHTS AND REMEDIES CONFERRED UPON A LESSEE BY ARTICLE 2A.
(P) Counterparts. This Agreement may be signed in several counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
19. Additional Definitions. The following terms shall have the meanings
set forth below:
(A) "Contract Year" means each successive twelve (12) calendar month
period following the Payment Commencement Date.
(B) "Fair Market Value" shall mean the in place value of the Equipment
to the user, as reasonably determined by RoomSystem, which would be obtained in
an arms-length transaction between an informed and willing buyer-user under no
compulsion to buy and an informed and willing seller under no compulsion to
sell, where the costs of installation, removal and advertising from the places
the Equipment is or will be located pursuant to this Equipment
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<PAGE>
Schedule during the Term shall not be a deduction from such value. In no event
will the Fair Market Value of the Equipment be less than the Liquidated Damage
Value.
(C) "Interim Payment" means all Lease Payments (as defined in the
Equipment Schedule) from and including the date any Equipment is activated and
operational to but excluding the Payment Commencement Date.
(D) "Lease Payment" has the meaning accorded to such term in the
Equipment Schedule.
(E) "Merchandise" means all goods sold and services provided in
connection with the Equipment.
(F) "Payments" means the Interim Payment, the Lease Payments, as
applicable, and all other amounts owed to RoomSystem under this Agreement.
(G) "Payment Commencement Date" means the first day of the calendar
month immediately following the Acceptance Date.
(H) "Payment Date" means the first day of each calendar month following
the Payment Commencement Date.
(I) "Revenue" means all sums received by Hotel or RoomSystem (excluding
sales tax actually collected), arising from or in connection with the sale of
Merchandise or usage from the Equipment.
(J) "Sales Reports" means the reports of sales activity of the
Equipment generated by the System's computerized sales tracking functions and
transmitted to Servicer by modem from Hotel.
(K) "Software" means the computer software and the related firmware
used for the operation of the System provided by Servicer in connection with the
Equipment.
(L) "System" means the Equipment and all related Software.
By signing this Agreement: (i) Hotel acknowledges that it has read and
understands all terms and conditions in this Agreement and all attachments and
exhibits to this Agreement, (ii) Hotel has an unconditional obligation to make
all Payments due under this Agreement, and that Hotel cannot withhold, set-off
or reduce such Payments for any reason, and (iii) Hotel is leasing the Equipment
solely for business purposes.
IN WITNESS WHEREOF, RoomSystem and Hotel have caused this Agreement to be
duly executed as of the date first above written
ROOMSYSTEM: HOTEL:
RoomSystem International Funding *1
Corporation a *9 corporation
a Nevada corporation
By: By:
--------------------------------- --------------------------------
Steven L. Sunyich
Its: Chief Executive Officer Its:
--------------------------------
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EQUIPMENT SCHEDULE NO. I
ATTACHMENT I
to
HOTEL REVENUE SHARING LEASE AGREEMENT (The "Hotel Agreement") dated as of *3
between
RoomSystem Technologies, Inc. and
*1.
ROOMSYSTEM: HOTEL:
RoomSystem Technologies, Inc. *1
3770 Howard Hughes Parkway, Suite 175 *2
Las Vegas, NV 89109
Attention: General Counsel Attention: General Manager
Equipment Schedule Date: *3
Initial Term: 84 months from Payment Commencement Date.
Expected Delivery Date: 120 days from receipt of documentation
Location of Equipment: *2
Address for Notices: Same as above
Description of Equipment:
Manufacturer's
Quantity Manufacturer Model/Feature Description List Price
*4 RoomSystem, *5 *6 Selection Refreshment $*7
Inc. Center
*4 RoomSystem, *5 *6 RoomSafe $*7
1 RoomSystem, 586-133 RoomManagement Computer
Total Manufacturer's Price $*7
1. Lease Payment: Revenue Sharing. Hotel shall pay RoomSystem (or its
Assignees) as a monthly lease payment a portion of the Revenue (as defined in
section 19 (I) of the Hotel Agreement) determined in accordance with the revenue
sharing formula contained herein and all other amounts due hereunder or pursuant
to the Hotel Agreement (each such payment a "Lease Payment"). Revenue collected
from sales from the Equipment will be shared between RoomSystem and Hotel as
follows: (i) the first $0.*8 of Revenue collected (the "Threshold Amount") each
day, shall be divided 90% to RoomSystem and 10% to Hotel; and (ii) all Revenue
in excess of the Threshold Amount collected each day, shall be divided 15% to
RoomSystem and 85% to Hotel. Revenue sharing shall be reasonably determined by
RoomSystem pursuant to those certain Sales Reports provided by RoomSystem or
Servicer for each month during the term of this Equipment Schedule on an
annualized basis adjusted quarterly and such determination shall be binding upon
Hotel. RoomSystem or Servicer shall provide a copy of the Sales Reports to Hotel
monthly.
2. Hotel's Purchase Option. Provided no Event of Default has occurred and
is continuing, Hotel shall have the option, exercisable no later than ninety
(90) days after the Acceptance Date, and upon not less than fifteen (15) days
prior written notice to RoomSystem, to purchase all (but not less than all) of
the Equipment from RoomSystem for a price equal to the Fair Market Value (as
defined in section 19 (B) of the Hotel Agreement) of such Equipment or the
Liquidated Damage Value, as defined in Attachment II to the Hotel Agreement,
whichever is greater, and upon such other terms mutually acceptable to
RoomSystem and Hotel.
3. RoomSystem' Termination Option. At any time during the term of this
Agreement, Owner shall have the option, exercisable upon three months written
notice to Hotel, to terminate this Agreement if the following conditions occur:
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<PAGE>
(A) If the Equipment in the Hotel does not (i) generate from the Fee at
least $1.00 per room per day average for all installed Refreshment Centers for
an aggregate total of 60 days; or (ii) negative adjustments made by the Hotel
exceed 2% of the total sales for any given month.
4. Special Terms.
(A) Restocking. Hotel agrees to check (via computer or physical visit)
the stock in each Placed Item daily and to ensure that all Placed Items are kept
above the minimum restock level required by Servicer. In the event any Placed
Item falls below the minimum restock level and it is not restocked within
twenty-four (24) hours to bring the Placed Item(s) above the minimum restock
level, such Placed Item(s) will be considered a down room for the guest(s) and
the Hotel shall pay RoomSystem a down room fee ("Down Room Fee") of $0.*8 per
room per day for each day the Placed Item in the room remains below the minimum
restock level.
(B) Down Room Fee. The Down Room Fee will also accrue to any Placed
Item that the Hotel fails to follow the terms and conditions of Section 5 of the
Hotel Agreement.
5. Hotel Agreement. This Equipment Schedule No. I is executed pursuant
to the Hotel Agreement. All of the terms and conditions of the Hotel Agreement
are hereby incorporated herein and made a part hereof as if such terms and
conditions were set forth herein. By the execution and delivery of this
Equipment Schedule, the parties hereby reaffirm all of the terms and conditions
of the Hotel Agreement, except to the extent, if any, modified hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Equipment
Schedule No. I as of the day and year first set forth above.
ROOMSYSTEM: HOTEL:
RoomSystem Technologies, Inc. *1
a Nevada corporation a *9 corporation
By: By:
-------------------------------- -------------------------------
Steven L. Sunyich
Its: Chief Executive Officer Its:
-------------------------------
10
<PAGE>
Master Hotel Installation, Maintenance, License Agreement
HOTEL INSTALLATION, MAINTENANCE AND LICENSE AGREEMENT
to
HOTEL REVENUE SHARING LEASE AGREEMENT dated as of *3
between RoomSystems, Inc. and
*1.
THIS HOTEL INSTALLATION, MAINTENANCE AND LICENSE AGREEMENT (this
"Maintenance Agreement") is entered into as of *3, by and between ROOMSYSTEMS,
INC., a Nevada corporation, whose address is 390 North 3050 East, St. George, UT
84790 hereinafter referred to as ("RSi"), and *1, a *9 corporation hereinafter
referred to as ("Hotel") whose address is *2.
WHEREAS, Hotel has entered into a Hotel Revenue Sharing Lease Agreement
dated as of *3 ("Hotel Agreement") with RoomSystem Technologies, Inc., a Nevada
corporation ("RoomSystem") which, among other things, provides financing of
certain equipment to store valuables and for the refrigeration and dispensing of
beverage and snack food items within the guest rooms of Hotel ("Equipment") and
which Equipment automatically records the sales and usage of merchandise in the
Hotel; and
WHEREAS, the Hotel Agreement, Equipment Schedule No. I dated as of *3
between RoomSystem and Hotel and all other Equipment Schedules issued from
time-to-time pursuant to the Hotel Agreement (collectively the "Documents")
require Hotel to install the Equipment and enter into a maintenance agreement;
and
WHEREAS, Hotel is satisfying its installation and maintenance obligations
under the Documents by entering into this Maintenance Agreement with RSi;
NOW, THEREFORE, in consideration of the premises and the terms, covenants,
and conditions hereinafter contained, the parties hereto agree as follows:
1. Delivery and Installation.
(A) The Equipment (such term and all capitalized terms not otherwise
defined in this Maintenance Agreement shall have the meanings ascribed to such
terms in the Documents) shall be programmed by RSi, placed in the guest rooms by
Hotel and installed in the Premises by RSi.
(B) In connection with the delivery and installation of the Equipment,
Hotel shall: (i) provide access to representatives of RSi to all areas of the
Premises necessary or appropriate in connection with the installation of the
Equipment; (ii) permit representatives of RSi to install such wires, and similar
items throughout the Premises as RSi deems necessary for the installation; (iii)
provide room and board on the Premises to employees or representatives of RSi
during the installation period of up to seven (7) days for each one-hundred
(100) Placed Items installed, such room and board (in Hotel's employee
cafeteria, if available) not to include long distance phone calls, use of
personal laundry, valet, in-room movies, gift shop purchases, alcoholic
beverages, or any other charges other than room or board; (iv) promptly, upon
delivery of the Equipment to the Premises, unload all such items and place them
in a storage area. In addition, Hotel shall supply adequate staff to stock and
place the Equipment in the guest rooms under the direction of RSi's employees.
If Hotel desires RSi to provide the services, RSi will hire, at Hotel's expense,
temporary labor; and (v) pay for an "interface" between the Equipment and
Hotel's property management system located on the Premises.
(C) If Hotel desires any Placed Item to be installed in any room in a
location where there are no grounded outlets within six feet (6'), and a MATV
connection or RJ-11 direct-connect socket within twelve feet (12') of the
location of any Placed Item, such Placed Item shall be relocated to a location
that meets the foregoing requirements, or Hotel shall remedy the problem by
providing adequate extension cords or installing new outlets, connections or
sockets as applicable, at Hotel's own expense. Such work shall be performed in
accordance with the applicable industry standards.
(D) Prior to RSi's obligation to install the System, Hotel shall
provide all necessary requirements for the installation of the System, including
but not limited to the following: (i) an adequate site for the Placed Items in a
dust free location in an air conditioned environment; (ii) two (2) telephone
extensions and a telephone set, at the sole expense of Hotel, adjacent to the
modem supplied by RSi hereunder for the sole use of RSi to monitor the
Equipment; (iii) if available, internet access through hotels provider of
choice; (iv) adequate ventilation for each Placed Item; and (v) a fixed grounded
electrical outlet to be used for each Placed Item in each room.
2. Acceptance.
(A) The installation of the Equipment (or any stage thereof), shall be
deemed to be complete when the Equipment (or any portion thereof designated to
be installed in any stage) is operational. Upon completion of the
1
<PAGE>
installation, RSi will provide written notice of such completion ("Notice of
Completion") to Hotel. Immediately upon receipt of the Notice of Completion,
Hotel shall inspect the Equipment and, if the Equipment is in good working
order, Hotel shall execute and deliver to RoomSystem the certificate of
acceptance in the form of Exhibit A to the Equipment Schedule (the
"Certificate"), dated as of the date of such inspection, or Hotel shall provide
written notice to RSi specifying and describing in detail each item with respect
to which it is claiming that the installation is not complete. If the Hotel
fails to give such written notice or to execute the Certificate within five (5)
days following the Notice of Completion, it will be conclusively presumed that
the Equipment is in good working order and that the Equipment has been
irrevocably accepted by the Hotel as if the Hotel had executed the Certificate,
and the Hotel hereby agrees to be bound by the terms of the Certificate.
(B) If Hotel fails to promptly comply with any of its obligations in
sections 1 and 2 hereof, Hotel shall pay to RSi all costs and expenses incurred
by RSi with respect to the delay occasioned by such failure, including, without
limitation, storage, shipping costs, and per diem charges (including lodging,
meals and travel) for RSi's representatives.
(C) If RSi shall be unable to install the Equipment and make the
Equipment operational after reasonable efforts to do so other than as a result
of Hotel's failure to comply with its obligations under this Maintenance
Agreement and the Hotel Agreement, RSi shall so notify Hotel and shall remove
all of the Equipment from the Premises and this Maintenance Agreement "and all
right and obligations of the parties hereunder" shall terminate. Hotel and the
owner of the Premises shall provide to RSi and its agents and representatives
access to the Premises and facilities of the Hotel for such purposes for a
reasonable time and at any reasonable time to enable RSi to remove the Equipment
from the Premises.
3. Training. RSi shall provide basic training on site in the operation
of the Equipment for Hotel's personnel involved in operation and maintenance of
the Equipment. The training will be conducted at the Premises. RSi will provide
up to three (3) days of training without cost to Hotel. Hotel will provide room
and board at no cost for RSi personnel. If additional training is required, RSi
will provide it at no charge provided it is at the time of a scheduled visit as
set forth in section 4 below. If additional training is required by Hotel at a
time other than during a scheduled visit, RSi will perform the training at RSi's
then customary charge for such service.
4. Service. RSi and Hotel, as applicable, will each at their own
expense provide the following:
(A) RSi will provide twenty-four (24) hour telephone service and
maintenance to help maintain and keep the Equipment in normal working order
during the term of this Maintenance Agreement. RSi shall provide all necessary
parts to service the Equipment for the term of this Maintenance Agreement.
(B) Hotel shall provide maintenance personnel capable of removing and
replacing defective parts to the Equipment in a timely manner and provide such
service and maintenance that are necessitated by normal usage. RSi may, at its
option, elect to replace rather than repair any of the Equipment it is obligated
to maintain hereunder.
(C) The Hotel shall be responsible for purchasing and providing for use
with the Equipment all consumable items, including printed menus, printer paper,
diskettes and printer ribbons.
(D) The Hotel shall provide at no expense to RSi on an as needed basis
(generally semi-annually) room and board for the training, service, and
maintenance crew that will make follow up visits to the Premises.
(E) RSi will monitor the operations of the Placed Items, and will make
semi-annual visits to Hotel, to provide Hotel retraining, merchandising
recommendations, operational recommendations and software support.
5. Warranties, Disclaimer and Limitation of Remedies.
(A) RSi warrants that the Equipment will be installed in a
workmanlike manner and that the Equipment will be free from defects in
workmanship and materials for a period of three months from the Acceptance Date.
(B) Except as expressly provided herein, RSi expressly disclaims all
other warranties with respect to the Equipment, express and implied.
(C) The limited express warranty provided herein is for the benefit of
Hotel only and is not for the benefit of any other person.
(D) The limited express warranty provided herein is conditioned upon
proper use of the Equipment and Software (as defined in section 19 (K) of the
Hotel Agreement). No warranty shall apply to any item of Equipment or the
Software, (i) which has been modified in any respect without the express written
consent of RSi, (ii) which has been installed, serviced or repaired by or on
behalf of Hotel by any person other than an authorized agent of RSi, (iii) which
has been removed from the Premises, (iv) which has been subject to unusual
physical or electrical stress, or (v) which has been damaged by reason of
accident, neglect or misuse.
(E) In the event that any item of Equipment or the Software shall be
defective in workmanship of material within the term of this Maintenance
Agreement, RSi shall replace the item of Equipment with a new or reconditioned
component or components thereof, or make such modifications to the Software in
order to return it to good working order, subject to the following terms and
conditions: (i) Hotel shall give notice to RSi of the defect
2
<PAGE>
within the term of this Maintenance Agreement; (ii) Hotel shall ship any
defective part or component to such location as RSi shall designate at Hotel's
expense; (iii) RSi may, at its sole discretion, provide a comparable substitute
part or component for any defective or failed part or component, which shall
fully discharge RSi's obligation to repair or replace such defective items; (iv)
Hotel is responsible for installing components on the Equipment and sending and
receiving the parts as necessary to and from RSi.
6. Software License Agreement.
(A) Subject to and on the terms and conditions hereof and for the term
of this Maintenance Agreement, RSi grants to Hotel a non-transferable and
non-exclusive license (the "License") to use the Software as installed by RSi on
the Equipment. The Software may be used solely by Hotel for the purpose and
subject to the limitations provided herein and Hotel shall not be entitled to,
(i) give, deliver, provide access to or authorize the use of the Software by any
person other than authorized employees of Hotel or (ii) give, sell, assign or
grant any rights with respect to the Software to any person. Hotel may assign
the License, subject to the prior written consent of RSi which shall not
unreasonably be withheld, to a person, firm, company, partnership or corporation
which shall succeed to the business of Hotel by means of merger, consolidation
or acquisition of substantially all of the property and assets of Hotel.
(B) RSi retains exclusive title to, and ownership in, the Software, as
installed on the Equipment or otherwise, and all copies thereof regardless of
the form or media in or on which the original or any copies may exist. All
rights with respect to the Software not expressly granted to Hotel hereunder are
reserved to RSi. The License does not and shall not be construed to give Hotel
any right, claim, title to or ownership interest in, the Software, any trade
secrets, patent, copyright, trade name, trademark or other proprietary right
owned, applied for or subsequently acquired by RSi.
(C) Hotel agrees that the Software will be used by Hotel solely at the
Premises and solely for the operation of the Equipment. Hotel shall not modify,
adapt, translate, reverse engineer, decompile or disassemble the Software or
create works based on the Software without the express prior written consent of
RSi. Any modification, enhancement, change in or addition to the Software
whether made by RSi, Hotel or otherwise shall be and remain the sole and
exclusive property of RSi.
(D) Hotel agrees that the Software and related materials provided by
RSi contain proprietary information and trade secrets of RSi. Hotel agrees that
it will authorize and permit the use by its employees of the Software and the
confidential information therein solely for the purpose and in accordance with
the provisions hereof and will not disclose, or authorize or permit disclosure
by its employees of any confidential information to any person other than
authorized employees of Hotel.
(E) The License granted herein shall be perpetual for the version
provided at installation if either the Equipment is purchased or leased. If the
Equipment is leased and not purchased at the end of the lease the License is
canceled. All new versions and support will be subject to the current purchase
price or fee at the time of installation and terminating on the date of
termination of this Maintenance Agreement.
7. Service and License Fees. Hotel shall pay to RSi a fee for the
services, License and materials provided by RSi pursuant to this Maintenance
Agreement in the amount of $0.08 per day per Placed Item. These payments may be
increased annually by a cost of living adjustment "COLA." These payments will be
made quarterly in advance. The total quarterly payment will be calculated by
multiplying the number of Placed Items times $0.08 times 91.25. Hotel shall not
have to make this payment so long as any Equipment is subject to the revenue
sharing arrangement of the Hotel Agreement and so long as no Event of Default
exists and is continuing under the Hotel Agreement.
8. Term of Maintenance Agreement. This Maintenance Agreement shall
become effective on the date of execution and shall remain in force and effect
until the term of all of the Documents have expired.
9. Liability for Damage to the Product. Hotel shall be responsible for
any damage to the Equipment which is caused by intentional or negligent conduct
of Hotel, its employees, agents, or representatives or Hotel guests while the
Equipment is in Hotel's possession. Hotel shall not be responsible for any
damages which are due to ordinary wear and tear, which Hotel could not
reasonably prevent, or damage caused by the intentional or negligent acts of
RSi.
10. Exclusive Dealing. During the term of this Maintenance Agreement,
RSi shall have the exclusive right to install and service the Equipment in
Hotel's guest rooms. Hotel shall not install any other products similar to the
Equipment in Hotel's guest rooms during this period without the prior written
consent of RSi.
11. Notice. All notice or other communications required or permitted to
be given hereunder shall be in writing and shall be (i) delivered personally,
(ii) mailed, postage prepaid, or (iii) faxed and a copy mailed to the parties,
as follows:
If to RSi: RoomSystems, Inc. 390 North 3050 East, St. George, UT 84790;
Facsimile 435-628-8611
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If to Hotel: As set forth in the applicable Equipment Schedule.
With a copy to: RoomSystem Technologies, Inc., 3770 Howard
Hughes Parkway, Suite 175, Las Vegas, NV 89109
12. Miscellaneous Provisions. The following miscellaneous provisions
are an integral part of this Maintenance Agreement:
(A) Binding Obligation. This Maintenance Agreement shall inure to the
benefit of and constitute a binding obligation upon the contracting parties,
their respective heirs, legal representatives and permitted assigns.
(B) Modifications. This Maintenance Agreement may not be modified
except by an instrument in writing signed by the parties hereto.
(C) Headings. The headings used in this Maintenance Agreement are for
reference purposes only and shall not be deemed to limit or affect in any way,
the meaning or interpretation of any of the terms or provisions of this
Maintenance Agreement.
(D) Severability. The provisions of this Maintenance Agreement are
severable, and should any provision hereof be void, voidable, unenforceable, or
invalid, such a void, voidable, unenforceable or invalid provision shall not
affect any other portion or provision of this Maintenance Agreement.
(E) Waiver. Any waiver by any party hereto of any breach of this
Maintenance Agreement of any kind or character whatsoever by the other party,
whether such waiver is direct or implied, shall not be construed as a continuing
waiver or consent to any subsequent breach of this Maintenance Agreement on the
part of the other party.
(F) Applicable Law, Jurisdiction and Venue. This Agreement shall be
governed by, and construed in accordance with, the laws of the state of Nevada,
without regard to principles of conflicts of law. RSi and Hotel hereby consent
to jurisdiction and venue in any state or federal court in the state of Nevada
and hereby waive any objections that jurisdiction or venue in any such court is
not proper.
(G) Attorneys' Fees. In the event any action or proceeding is brought
by any party under this Maintenance Agreement, the prevailing party shall be
entitled to recover reasonable attorneys' fees and costs of court from the
non-prevailing party.
(H) Counterparts. This Maintenance Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
(I) Confidentiality. The terms of this Maintenance Agreement shall be
confidential, and neither party shall reveal to any person, hotel, or other
entity the terms hereof and no copies shall be made of this Maintenance
Agreement except for the parties confidential records and except as necessary to
enforce its terms, without the prior written consent of the other party.
IN WITNESS THEREOF, the parties hereto have executed this Maintenance
Agreement the day and the year first named above.
RSI: HOTEL:
RoomSystems, Inc. *1
a Nevada corporation a *9 corporation
By: By:
-------------------------------- --------------------------------
Steven L. Sunyich
Its: Chief Executive Officer Its:
--------------------------------
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Exhibit 10.19
NONCOMPETITION AND NONDISCLOSURE AGREEMENT
THIS NONCOMPETITON AND NONDISCLOSURE AGREEMENT (this "Agreement") is
entered into as of ______________________ by and between eRoom System
Technologies, Inc., a Nevada corporation ("Company"), and
________________________ ("Sales Representative").
WHEREAS, Company owns certain proprietary, technical, financial and
business information regarding the manufacture and distribution of a fully
integrated computer-controlled credit card vending systems/in-room refreshment
center/in-room safe/and other related systems and accessories that relate to
free-standing or built-in refrigerators and/or refreshment centers for use in
hotels, motels, hospitals, condos, and other applications relative to the
hospitality and related industries (the "Company Products"); and
WHEREAS, Company owns other proprietary technology related to
electro-mechanical transaction, authorizing, tracking and service provisions
which include a remote data processing and transmission system which allows data
to be captured, stored, displayed, analyzed and transmitted for processing any
of the Company Products ( "Company Technology"); and
WHEREAS, there are several completed USA Patents and additional USA and
foreign letters of patent pending on the Company Products, as well as
trademarks, and copyrights, and other related intellectual property related
thereto; and
WHEREAS, Sales Representative currently distributes, sells or in other
ways supply products and/or systems to the hospitality industry and is desirous
to explore the option of providing the Company Products to its current and
expanding customer base; and
WHEREAS, Company is willing to disclose confidential information to Sales
Representative subject to the following terms and conditions.
NOW, THEREFORE, the parties agree as follows:
1. Confidentiality of Information. In consideration of the execution of
this Agreement, discussion concerning Company's current business or future
business regarding the Company Products, Company Technology or any future
agreements, Sales Representative agrees that he will neither directly and/or
indirectly, individually or as an officer, director or agent of any corporation
or other entity, engage in or be interested in the manufacturing, selling or
dealing in the Company Products and/or Company Technology or facsimiles thereof
without the written approval of Company; nor reveal any of the information
received under this Agreement to any third party; nor use such information to
manufacture, sell or deal in a similar product; nor to affect in any way current
or future sales of the Company Products and/or the Company Technology.
2. Nondisclosure. Sales Representative shall not at any time or in any
manner, either directly or indirectly, divulge, disclose or communicate to any
person, corporation or other entity or utilize in any manner whatsoever any
information concerning any matters affecting or relating to Company's businesses
and/or the Company Products (the "Proprietary Material"). This covenant of
nondisclosure and non-use includes, without limiting the generality of the
foregoing, any of Company's customers, employees, assigns, executors or
administrators. Sales Representative further agrees not to disclose to any other
person, corporation or entity or utilize any of the Proprietary Material and/or
information concerning Company business, the Company Products, and/or the
Company Technology; concerning Company's manner of
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operation of manufacturing; concerning Company's plans, processes or other data
with regard to the Company Products, all of which are Proprietary Material
without the prior written consent of Company. Sales Representative hereto agrees
and stipulates that the business of Company and all information characterized as
Proprietary Material and is important, material and confidential and could
gravely affect the effective and successful conduct of the business of Company.
3. Return of Proprietary Information. Sales Representative shall deliver
all files, documents and other media (and any and all copies and reproductions
of any of the foregoing) in her possession or control which contain or pertain
to the Proprietary Material upon termination of any business discussions or
relationship between the parties, or upon request by Company. Sales
Representative agrees that upon termination of her business relationship with
Company, Sales Representative shall not retain copies (either hard printed or
soft computer storage copies) of any of the Proprietary Material.
4. Nonsolicitation. During the period of business discussions between the
parties and for a period of one (1) year after any termination of such
discussions and/or any business relationship, neither party will attempt, either
directly or indirectly, to induce or attempt to influence any employee of the
other party to leave such other party's employ.
5. Default. Any breach of this Agreement by either Company or Sales
Representative shall give rise to any and all legal and/or equitable remedies,
including but not limited to injunctive relief, against the party in breach of
the terms hereof, available in the State of Utah.
6. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and superseded any and all written or oral agreements
entered into prior to this Agreement.
7. Amendment. This Agreement may be amended only in writing and signed by
the parties hereto.
8. Assignment. This Agreement may not be assigned by any party hereto
without the prior written consent of the other party sought to be charged.
9. Construction. This Agreement shall be governed by and construed under
the laws of the State of Nevada.
10. Attorney's Fees. Should enforcement of this Agreement be necessitated
by the act of any party, and should a lawsuit be commenced, the prevailing party
in such lawsuit shall be entitled to attorney's fees and costs incurred in such
litigation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
eROOM SYSTEM TECHNOLOGIES, INC. SALES REPRESENTATIVE
a Nevada corporation
By: By:
--------------------------------- -------------------------------
Steven L. Sunyich
Its: Chief Executive Officer
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Exhibit 10.20
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement") is entered into as of
______________________ by and between eRoom System Technologies, Inc., a Nevada
corporation ("Company"), and _______________________ ("Consultant"). Company and
Consultant are collectively referred to hereinafter as the "Parties".
ARTICLE 1. WORK ASSIGNMENTS
Section 1.01. Consultant agrees to provide the services outlined in
Article 2 hereinbelow.
Section 1.02. Term. The Agreement shall commence as of the date
hereof and terminate on ______________.
ARTICLE 2. DUTIES OF CONSULTANT
Section 2.01. Description of Duties. Consultant shall provide the
following:______________________________________________________________________
ARTICLE 3. COMPENSATION
Section 3.01. Compensation. Consultant shall be paid at the rate
of $___________ for all services rendered.
Section 3.02. Taxes. The relationship by and among the Parties shall
be that of an independent contractor. Contractor shall not receive benefits from
the Company, and Contractor shall be solely responsible for paying her state and
federal income, disability and social security taxes, as applicable. No
provision contained herein shall create an employer/employee relationship
between the Parties.
ARTICLE 4. PROPRIETARY INFORMATION
Section 4.01. Records. (a) All records of the accounts of Company,
of any nature, whether existing at the time of Consultant's engagement, procured
through the efforts of Consultant, or obtained by Consultant from any other
source, and whether prepared by Consultant or otherwise, shall be the exclusive
property of Company regardless of who actually purchased the original book,
record, or magnetic storage unit on which such information is recorded.
(b) All such books and records shall be immediately
returned to Company by Consultant on any termination of engagement, whether or
not any dispute exists between Company and Consultant at, regarding, and/or
following the termination of this Agreement.
Section 4.02. Confidentiality. Consultant hereby acknowledges that
he has received information regarding the business and all of Company's
products, including but not limited to
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customer lists, product information, designs, patent design and art work,
schematics, drawings, software codes and deliverables, hardware specifications
and designs, business strategies, employee agreements, all of which information
is confidential information (the "Confidential Information"). The parties hereto
recognize and acknowledge that the Confidential Information is proprietary and
integral to Company's business and agrees to keep such Confidential Information
confidential shall not at any time or in any manner, either directly or
indirectly, divulge, disclose or communicate to any person, corporation or other
entity or utilize in any manner whatsoever any information (including but not
limited to the Confidential Information) concerning any matters affecting or
relating to Company's businesses and/or the Company's products (the "Proprietary
Material"). This covenant of nondisclosure and non-use includes, without
limiting the generality of the foregoing, any of Company's customers, employees,
assigns, competitors, consultants, executors or administrators. Consultant
further agrees not to disclose to any other person, corporation or entity or
utilize any of the Proprietary Material and/or Confidential Information
concerning Company's business, its products, and/or any of its technologies;
concerning Company's manner of operation of manufacturing; concerning Company's
plans, processes or other data with regard to its products, all of which are
Proprietary Material, without the prior written consent of Company. Consultant
hereto agrees and stipulates that Company's and all information characterized as
Proprietary Material and/or Confidential Information are important, material and
confidential and could gravely affect the effective and successful conduct of
Company's business. Consultant further agrees not to disclose the same to any
third person, corporation and/or entity for a period of three (3) years
subsequent to the termination of this Agreement or termination of Consultant as
a Consultant of Company, whether such termination is with or without cause.
Section 4.03. Products. All ideas, inventions, products or
otherwise, relating in any way to Company's business, designed, improved,
planned, proposed, altered, modified, refined or enhanced by Consultant shall be
considered work for hire to the fullest extent permitted under Nevada law and
shall remain at all times the sole property of Company. Consultant shall not be
allowed to use such ideas, inventions or products unless she receives the prior
written consent of Company. Any and all patents, trademarks, patent filings or
the like relating in any way to Company's products shall remain the sole
property of Company and upon request, Consultant shall execute any and all
documents, filings or contracts assigning the same to Company. Furthermore,
whenever requested to do so by Company, Consultant will execute any and all
applications, assignments or other instruments that Company deems necessary to
protect Company's interests therein. Consultant's obligations hereunder shall
survive the termination of Consultant's engagement with respect to inventions,
discoveries and improvements conceived or made by Consultant during the term of
Consultant's engagement described in this Agreement.
ARTICLE 5. NON COMPETITION
Section 5.01. Non-Competition. During Consultant's term of
engagement set forth in this Agreement, and for a period of two (2) years
thereafter, Consultant will not directly or indirectly be an owner, partner,
director, manager, officer or employee or otherwise render services or be
associated with any business that competes with Company; that during the same
period listed herein, Consultant will neither directly and/or indirectly,
individually or as an officer, director or agent of any corporation or other
entity, engage in or be interested in the manufacturing, selling or dealing in
Company's products and/or its technology or facsimiles thereof without Company's
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written approval; nor reveal any of the Confidential Information and/or
Proprietary Materials received under this Agreement to any third party; nor use
of the Confidential Information and/or Proprietary Materials to manufacture,
sell or deal in any products similar to those manufactured, marketed and/or sold
by Company; nor to affect in any way current or future sales of the Company's
and/or its technology. Further, Consultant agrees that during the term of this
Agreement she shall not hire away or assist other companies in hiring away
current employees or Consultants of Company.
ARTICLE 6. GENERAL PROVISIONS
Section 6.01. Notice. Any notices to be given by either party to the
other may be effected either by personal delivery in writing or by mail,
registered and certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at their last known addresses as
appearing on the books of Company.
Section 6.02. Entire Agreement. This Agreement supersedes any an all
other agreements, except the sales agreement between Company and Consultant,
either oral or written between the parties with respect to the engagement of
Consultant by Company for the purposes set forth in Article 2.1, and contains
all of the covenants and agreements between the parties with respect to such
consulting work whatsoever. Each part to this Agreement acknowledges that no
representations, acting on behalf of any party, which are not embodied herein,
and that no other agreement, statement, or promise not contained in this
Agreement shall be valid or binding. Any modification of this Agreement will be
effective only if it is in writing signed by the party to be changed.
Section 6.03. Severability. If any provision in this Agreement is
held by a court of competent jurisdiction to be invalid, void, or unenforceable,
the remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any manner.
Section 6.04. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of Nevada.
Section 6.05. Mandatory Arbitration. Any controversy or claim
arising out of or relating to this Agreement, or the breach thereof, shall be
settled by binding arbitration in accordance with the Commercial Rules of the
American Arbitration Association by a single arbitrator, mutually agreed upon by
the Parties, in Las Vegas, Nevada. Judgment upon the award rendered by the
arbitrator may be entered into in any court of competent jurisdiction and shall
not be appealable. Furthermore, the prevailing party shall be entitled to
reasonable attorneys' fees.
Section 6.06. Counterparts. This Agreement may be executed in
counterparts, each of which shall be constitute an original, but all of which
when taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, this Agreement was executed as of the date first
set
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forth above.
eRoom System Technologies, Inc.,
a Nevada Corporation
____________________________
Steven L. Sunyich
Chief Executive Officer
CONSULTANT
___________________________
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Exhibit 10.21
SALES REPRESENTATION AGREEMENT
THIS SALES REPRESENTATION AGREEMENT (this "Agreement") is dated this
_______ day of ___________________ by and between eRoom System Technologies,
Inc. ("Company"), a Nevada Corporation, and ________________________ (referred
to hereinafter as "Representative").
W I T N E S S E T H:
WHEREAS, Company desires to obtain the services of Representative in
representing Company's products and services described more fully in Exhibit
"A," attached hereto and incorporated herein by reference (referred to
hereinafter as the "Products") and assisting Company in doing business in the
"Territory," defined hereinafter; and
WHEREAS, Representative represents that he/she/it has extensive knowledge
of business opportunities, laws, governmental regulations and procurement
practices and desires to represent the Products in the "Territory" and
NOW, THEREFORE, in consideration of the mutual agreements and obligations
and covenants herein contained, the parties agree as follows:
ARTICLE 1: APPOINTMENT
1.01 Representation Appointment. Company hereby appoints Representative to
be its representative of the Products in the performance-based protected
"Territory," described in Exhibit "B," a copy of which is attached hereto and
incorporated herein by reference (the "Territory.") Representative shall be
protected in the Territory so long as Representative adheres to the terms and
conditions described herein.
1.02 Sales Outside the Territory. Sales made to corporations residing
outside of the Territory are subject to the "Commission Schedules," described in
Article 4.0 hereof. Notwithstanding the foregoing, Representative may not effect
sales of the Products outside the Territory without the express written consent
of the Company's Executive Vice President of Sales and Marketing (the
"Vice-President").
1.03 Excluded Sales. This Agreement excludes all "after sales agreements"
and sales such as service and maintenance, including, but not limited to parts,
spares, replacement units, expansion units, and services.
1.04 Independent Contractor. In making this appointment, Representative is
and shall remain, an independent business contractor and nothing herein shall be
deemed to imply or create a relationship of employee and employer.
Representative shall not represent that Representative has the power or
authority to enter into any agreements or contractual obligations on behalf of
Company unless Company provides a separate letter of authorization authorizing
Representative to execute agreements on behalf of Company.
ARTICLE 2: SCOPE OF WORK
2.01 Representative's Obligations. During the term of this Agreement,
Representative agrees:
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(A) To maintain adequate contacts and sales personnel in the
Territory necessary to solicit, develop and promote the sale of the Products
actively;
(B) To provide liaison with Company's potential customers and/or
customers' procurement and engineering staffs with respect to developing
procurement specifications and ascertaining performance requirements of any
sales of the Products.
(C) To obtain and transmit to Company information pertaining to the
technical needs and requirements of potential customers in the Territory as is
applicable to the Products;
(D) To provide assistance to Company in discussions, preparations of
proposals, and negotiation held in the Territory leading to selling the Products
therein;
(E) To pay all costs of conducting Representative's business,
including commissions or other compensation to employees or other
agents/representatives of Representative;
(F) To provide monthly active prospect inventories of sales
opportunities currently being explored in the Territory;
(G) To assist Company in obtaining any relevant financial or other
information as requested by Company regarding existing and potential customers
with whom Representative intends to sell the Products;
(H) To provide reasonable effort to assure active participation and
attendance by Representative's personnel in sales meetings and training sessions
held by Company; and
(I) To provide a designated phone number for contacts or potential
customers to call with professional answering service or voice mail.
ARTICLE 3: Company OBLIGATION
3.01 Company's Obligations. During the term of this Agreement, Company
agrees:
(A) To provide Representative, at no cost, written materials relating
to the Products necessary to support product promotion and sales efforts;
(B) To respond within reasonable time to requests for price and
delivery of the Products covered by this Agreement;
(C) To provide Representative with current information as to
technical improvements in the Products covered hereunder; and
(D) To make timely payments of commission and fees earned as
specified herein.
(E) To prepare proposals and other paperwork arising therefrom upon
reasonable notice by Representative and upon Representative providing accurate
and sufficient information to Company.
ARTICLE 4: COMPENSATION
4.01 Commission. The commission due and payable, as described in this
Article, to Representative for a sale or lease or Placement Program of the
Products is 5.0% for any sale, whether to an individual or corporate property.
The Sales Commission shall be calculated on the retail sales price of the
Products as reflected in the executed "Master Sale / Leasing Agreement" by
Company and the "Purchasing / Leasing" entity.
(A) Payment of Commissions. The Sales Commissions shall be paid to
Representative as follows:
(i) Lease. Representative shall be paid the Sales Commission
pursuant to an executed "Lease Agreement" upon receipt of funding on such
lease(s) by Company.
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(ii) Sales. Representative shall be paid the Sales Commission
proportionately to the receipt of payments tendered by the purchaser. For
example, if the purchaser agrees to pay one-third down upon execution of a
purchase agreement, one-third down upon installation, and one-third down upon
acceptance of the Products by such purchaser, Representative shall be paid
one-third of his/her/its Sales Commission upon each such payment by such
purchaser.
(iii) Placement Program. Upon the execution by a hotel or other
such related property of a "Hotel Revenue Sharing Lease Agreement" (the "Revenue
Sharing Agreement") and Company's acceptance of the same, Representative shall
be entitled to a commission for each Refreshment Center placed (the "Revenue
Share Commission" or "Placement Program Commission"). The Revenue Share
Commission shall be paid to Representative upon Company's receipt of the funding
pursuant to each Revenue Sharing Agreement as written below. (The "Sales
Commission," "Corporate Sales Commission," "Revenue Share Commission" and
"Placement Program Commission" are referred to herein sometimes collectively as
the "Commissions.") However, Representative may be entitled to draws against
some of the Commissions according to the terms, conditions and schedules set
forth in Exhibit "D," a copy of which is attached hereto and incorporated herein
by reference.
(B) Sales Exclusions. The sales price upon which the Sales Commission is
based shall be exclusive of the following:
(i) Transportation, shipping, and handling/drayage including
packing, freight forwarding charges and insurance;
(ii) Taxes and duties of any kind;
(iii) Credits and allowances; if any;
(iv) Purchases directly by a customer through a general
purchasing agency of a corporate headquarters located outside the Territory,
unless the same falls within the workings of the "Corporate Sales Commission."
(v) Portions of a contract that is executed by a customer
directly with Company with no involvement by Representative. Such portions may
include changes to the original quantity or scope of work as indicated in the
initial contract.
4.02 Prior Contacts. Representative understands that other sales calls may
have been made to the same potential customer within the Territory by other
representatives of Company, including formal proposals for which a prior claim
to the Sales Commission and/or the Revenue Share Commission. In a case such as
this, a split commission may apply.
(A) "Grandfather" Clause. Company shall grant a six-month
"Grandfather" clause (the "Grandfather Period") for each newly assigned
Territory (the "New Territory") relative to any prior representative (the "Prior
Representative") who represented Company prior to the reassignment of the New
Territory. The Prior Representative shall have one (1) week following the
reassignment of any New Territory to a subsequent Representative (the "New
Representative") to remit a list of all contacts and/or prospective clients to
the Vice-President (the "Grandfather List"). The Grandfather List will be sent
to the New Representative in the New Territory with the understanding that the
individual and/or entities on the Grandfather List shall be maintained,
contacted and protected by the Prior Representative during the Grandfather
Period. After the Grandfather Period, any of the individuals and/or entities on
the Grandfather List who are not either under a "Placement Program Application"
(referred to as "PPA"), defined hereinafter, or any other executed agreement
with Company shall be turned over to the New Representative.
(B) Commission Splitting. In any situation where there is a question
of prior sales calls in the Territory, the splitting of any and all commissions
described herein, or relative to any other commission dispute, the
Vice-President shall make a determination of disposition of commissions,
including split commissions with the intention of dividing the same fairly
between and/or among all parties fairly. The Vice-President's decision shall be
final, except that Representative, or others involved in the sale, shall have a
right to
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appeal the decision in writing stating why the determination is considered
unfair. Company's Chief Executive Officer and two other company officers shall
review the decision based on such appeal and the decision on the appeal shall be
final on all parties.
4.03 Commission Modification. The Sales Commission and the Revenue Share
Commission may be subject to modification, upon thirty (30) days written notice
to Representative. No such modification shall apply to any proposal for which a
customer has signed a PPA.
4.04 Overpayments. Any overpayment of any of the commissions described
herein by Company to Representative resulting in a downward adjustment of the
price for the purchase, lease, etc. of the Products, any failure to receive
payment, repudiation or failure to complete the terms of any contract relating
to the Products or Services at no fault of Company, Representative, upon notice
from Company shall ensure such overpayment to be repaid. In addition to any
other remedy Company may have, Company may withhold from subsequent commissions
due Representative the amount of such over payment. Notwithstanding the
foregoing if any contract by a Company customer is fulfilled in its entirety and
Company is paid in full thereon, such contract shall not be subject to the
repayment obligations described in this paragraph.
ARTICLE 5: TERM OF AGREEMENT AND TERMINATION
5.01 Term. The term of this Agreement shall be one (1) year from the date
of this Agreement (the "Term"). The Term may be extended upon mutual agreement
of the parties hereto, for up to a period of two (2) additional one (1) year
Terms upon mutual agreement of the parties to this Agreement.
5.02 Termination By Either Party. This Agreement may be terminated by
either party at least sixty (60) days before the date of expiration of this
Agreement or any extension thereof of the terminating party's intention to
terminate.
5.03 Company Termination. Company may terminate this Agreement by
providing five (5) days written notice to Representative if:
(A) Representative fails to comply with the terms of this
Agreement;
(B) Representative shall become insolvent, bankrupt or any proceeding
by or against Representative as a debtor is commenced or there is a substantial
change in ownership or control of Representative's business, whether voluntary
or by operation of law; or
(C) Representative shall have violated the criminal provisions of
applicable laws or resolutions within the Territory.
5.04 Return of Materials Upon Termination. Upon termination of this
Agreement, Representative shall immediately return to Company the following: all
sales materials, product exemplars, copies of all client lists, Company "Sales &
Marketing" book, data sheets, samples, models, technical documents, drawings,
blue prints, and other written materials (the "Sales Materials"), which Company
provided to Representative. Company reserves the right to withhold any and all
Commissions until the return of all of the Sales Materials and products noted
above reasonably requested herein by Company at the time of termination.
5.05 Payments Upon Termination. Termination of this Agreement shall not
relieve either party of the obligation to pay to the other any amounts payable
at the time of termination or which were earned during the Term and payable in
the future, except as set forth in the above paragraph.
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5.06 Representative's Remedies. Upon termination of this Agreement for
whatever reason, Company's sole liability to representative, whether by claim or
right in court or otherwise, shall be to pay previously earned but unpaid
commissions to representative, except as set forth in this section. In no event
shall Company be liable for consequential or punitive damages of any kind for:
(A) Lost profits, real, anticipatory or otherwise; (B) Lost goodwill,
creation of clients, damage to reputation; or (C) Advertising, sales
or employee's costs.
5.07 Sales Goals. Representative and the Vice-President have established
annual minimum sales goals prior to the execution of this Agreement ("Sales
Goals") as set forth on Exhibit "C" to this Agreement, a copy of which is
attached hereto and incorporated herein by reference. Representative and
Vice-President shall review the Sales Goals quarterly and shall adjust the same
accordingly to Company's then current corporate sales and marketing plan for the
Territory. Failure to achieve these quarterly Sales Goals may result in
adjustments in the Territory, including, but not limited to reducing Territory
size, increasing the number of representatives working within the Territory or
terminating this Agreement.
ARTICLE 6: CONFIDENTIALITY AND CONFLICT OF INTEREST
6.01 Confidential Information. During the Term, Representative agrees
not to divulge to anyone, except in the performance of his/her/its duties
hereunder, or make use of information and knowledge relating to:
(A) Any projects for Company upon which Representative shall have
worked or shall be working;
(B) Knowledge of any of Company's business, which Representative
shall have obtained during the Term which is not generally known in the public
domain; or
(C) Any proprietary or closely held information of Company not
generally available to third parties or in the public domain.
6.02 Non-Competition. Representative may render service to others in a
consulting, agency or representative capacity provided that Representative shall
not serve any business or organization, or engage in any business on
Representative's own behalf which sponsors, produces or sells products or
services which compete with or conflict with the Products, Company's business
and/or requires contact with any customer, client or end user of the Products
and/or Services.
ARTICLE 7: FORCE MAJEURE
7.01 Force Majeure. Neither party shall be considered in default or
held responsible to the other on account of or arising out of the
interruption of its performance under this Agreement by:
(A) Epidemics, fire, explosion, flood, unusually severe weather, or
any other extraordinary natural disturbance, act of God, or of the public enemy,
any civil commotion, riot, insurrection, terrorism, or hostilities, war
(declared or otherwise) conditions that may adversely affect the safety of such
party's personnel, restrictions due to quarantines, blockades, embargoes,
unavailability of materials; unforeseen market shortages or any other cause
beyond the reasonable control of such party that arise without the fault or
negligence of such party, and that result in the delay of performance hereunder.
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7.02 Delays. Any delay resulting from the events above shall be deemed
excusable. The party whose performance will be delayed by such events will use
its best efforts to notify the other with five (5) days after the occurrence of
such events and within five (5) days after the cessation thereof. The party
whose performance is affected will diligently proceed to perform to the best of
its ability upon the resolution of the "Force Majeure" event.
ARTICLE 8: DISPUTE RESOLUTION
8.01 Arbitration. Any and all disputes, controversies, claims, or other
disagreements arising out of or relating to this Agreement or the actual or
alleged breach thereof shall be finally settled through arbitration in
accordance with rules of the American Arbitration Association. The arbitration
shall be held in Utah and shall be conducted under and in accordance with the
American Arbitration Association Rules applicable to Utah using the rules of law
not equity. Such arbitration shall be conducted in English and will be conducted
on confidential basis in accordance with the terms of the Agreement.
ARTICLE 9: GENERAL
9.01 Governing Law. The laws of the State of Nevada shall govern this
Agreement.
9.02 Entire Agreement. This Agreement supersedes and replaces all prior
sales or representation agreements between Company and Representative and cannot
be assigned or transferred by either party without the prior written consent of
the other.
9.03 Indemnification. Representative shall indemnify and hold harmless
Company from any liability, loss, or damage whatsoever, for injuries (including
death) to employees or principals of Representative arising out of
Representative's performance of this Agreement or from any losses whatsoever
arising out of Representative's breach of this Agreement.
9.04 Conduct. Representative shall at all times conduct itself in
accordance with the laws of the Territory and shall insure that Representative's
actions do not violate any regulations to which Company is bound. Representative
agrees to provide to Company upon request a certification that Representative
has not violated the provisions of any such regulations.
9.05 Notices. Any notices or order provided for in this Agreement shall be
provided in writing to the other party at the address first set forth above.
9.06 Subsequent Questions. Although this Agreement attempts to address all
contributions of circumstances, it is possible that questions will arise which
are not adequately answered by this Agreement itself. In such cases, the
specific decision of Company shall be binding.
9.07 Attorneys' Fees. In the event of litigation, prevailing party
shall have the right to receive court costs and reasonable attorneys' fees.
9.08 Assignment. Representative may not assign this Agreement to any third
party person or individual without the express written consent of Company.
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9.09 Amendment. This agreement shall not be amended, modified and/or
altered without the express written consent of each party to this Agreement.
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IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
the day and the year first named above.
EROOM SYSTEM TECHNOLOGIES, INC. REPRESENTATIVE
a Nevada corporation
By: By:
--------------------------------- -------------------------------
Steven L. Sunyich
Its: Chief Executive Officer
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Exhibit 10.22
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement"), dated
______________________, is by and between _____________________ ("Employee") and
RoomSystems, Inc. ("Employer").
R E C I T A L S:
WHEREAS, Employer's board of directors (the "Board") desires to employ
Employee in an executive capacity and the Employee desires to be so employed in
such capacity;
NOW THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
Term
1.1 Employment. Employer employs Employee and Employee accepts employment
under the terms and conditions of this Agreement.
1.2 Term. The term of this Agreement shall be for ____________ (____)
months with an open option thereon as set forth herein and shall be effective as
of ______________________, and shall terminate on ____________________, unless
extended by mutual agreement of the parties. Upon mutual agreement of the
parties, this Agreement may be extended for an additional period upon written
notice given to Employee not less than three (3) months prior to the termination
of this Agreement.
A. Option Term. Upon mutual agreement of the parties, and upon the
condition that there is no breach of any condition or term of this Agreement at
the time of exercise, this Agreement may be extended for an additional twelve
(12) months on the same terms and conditions of this Agreement, unless modified
or amended upon the written consent of Employer and Employee.
ARTICLE II
Compensation
2.1 Compensation. For all services rendered by Employee, Employer shall
pay Employee the salary commencing on ___________________, of $____________ per
year. Salary payments shall be subject to withholding and other applicable
taxes.
A. Salary Adjustment. Employer and Employee recognize that certain
"Events" (as defined in the following paragraph) may occur which will give rise
to a salary increase. Upon the occurrence of any one of the Events listed in the
following paragraph, Employee's salary shall be increased to $______________ per
year during the term of this Agreement. Such increase shall be automatic upon
the happening of any one of the Events listed below.
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B. Definition of "Events." For purposes of this Agreement and
particularly, the salary increases described in the foregoing paragraph, any one
of the following shall be considered an "Event":
i. Merger. A merger with a third party entity, whereby at least
fifty-one percent (51%) of Employer's outstanding common stock is merged with
such entity.
ii. Sale/Acquisition. A sale or acquisition of at least fifty-one
percent of Employer's outstanding common stock or the sale of all or
substantially all of Employer's assets to a third party entity.
iii. Capital. Employer's raising at least $4 million through the
sale of equity securities by September 30, 1999, unless otherwise extended by
the parties hereto.
iv. Debt Facility. A debt facility is put in place offering Employer
a debt facility of at least $6 million.
C. Second Salary Adjustment. Upon Employer's successful funding of
an IPO or a similar transaction, Employee's base compensation shall
automatically increase to $________________.
2.2 Earned Monetary Bonuses. Employee shall be entitled to an annual bonus
as determined by the Company's compensation committee (to be formed). Employee's
performance shall be reviewed annually to determine the payment of bonuses.
2.3 Automobile Allowance. Employee shall be entitled to an automobile
allowance of $_______ per month, payable in equal payments. Employer shall pay
Employee's automobile insurance and reasonable maintenance.
2.4 Stock Option Consideration. Employee, as partial consideration for his
services, shall be entitled to receive Stock Options as determined by the
Company's Stock Option Committee (to be formed). Such determination shall be
made on an annual basis.
2.5 Employee Benefits. In addition to the foregoing, Employee shall be
entitled to the following:
A. Health Insurance. Employer shall provide and pay for health,
dental and life insurance for Employee and his family with an insurance carrier
of Employer's choice. The benefits offered under this paragraph shall include a
standard executive employee health and life insurance program.
B. Expenses. Employee may incur reasonable expenses for promoting
Employer's business, including expenses for entertainment, travel and similar
items. Employer will reimburse Employee for all such reasonable expenses upon
Employee's presentation of an itemized account of such expenditures. Employer
shall provide Employee with a Diner's Club, American Express or other credit
card for his use in promoting and representing Employer, dependent upon
Employee's credit worthiness.
C. Vacations. Employee shall be entitled each year to "Flexible Time
Off" ("FTO") commensurate with a "Grade I" employee, as described in Employer's
Employee Handbook.
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ARTICLE III
Duties of Employee
3.1 Duties. Employee is engaged as ______________________________; and
shall have authority over such decision-making and managerial duties regarding
the business of Employer; and shall supervise and direct all of the business of
Employer according to business plans and strategies provided by Employer,
reporting only to the Board. The precise services of Employee may be extended or
curtailed by mutual agreement of Employer and Employee from time to time.
3.2 Extent of Services. Employee shall devote so much of his productive
time, ability and attention to the business of the Company as is necessary to
fulfill his duties; and shall perform all such duties in a professional, ethical
and businesslike manner. Employee will not, either during the term of this
Agreement and for a period of twelve (12) months thereafter, directly or
indirectly engage in any other business, either as an employee, employer,
consultant, principal, officer, director, advisor, or in any other business
capacity, which is competitive with the business of the Company, without the
express written consent of the Company. Furthermore, the Board may require that
Employee account for his time spent performing his duties hereunder at any time.
Upon such notice, Employee shall account for his time and deliver such
accounting to the Board until further notified. Based upon such records, the
Board, in its sole discretion, may adjust Employee's FTO and/or salary during
such period accordingly.
3.3 Engaging in Other Employment. Employee hereby agrees to undertake the
responsibilities for and devote his productive time, abilities, and attention to
the business of Employer during the term of this Agreement.
3.4 Regulations. Employee agrees to comply with all federal, state and
local laws, ordinances, and regulations in the conduct of his business on behalf
of Employer.
3.5 Accountability. Employee shall be directly responsible to the Board .
ARTICLE IV
Duties of Employer
4.1 Payment of Compensation and Provision of Benefits. During the terms
hereof, Employer agrees to pay all compensation, benefits, allowances and FTO
due to Employee as set forth herein.
4.2 Working Facilities. Employer shall provide offices, stenographic help
and such other facilities and services as are suitable to his position and
appropriate for the performance of his duties.
ARTICLE V
Disability; Death During Employment
5.1 Disability. If Employee is unable to perform his services by reason of
illness or incapacity for a period of more than one (1) month, the compensation
thereafter payable to him during the continued period of such illness or
incapacity for a period not to exceed
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twelve (12) shall be sixty percent (60%) of Employee's then current salary.
Employee's full compensation shall be reinstated upon his recovery.
Notwithstanding anything to the contrary, Employer may terminate this Agreement
at any time after Employee shall be absent from his employment, for whatever
cause, for a continuous period of more than twelve months (12), and the
obligations of Employer shall thereupon terminate. If it is determined, pursuant
to the terms of this Agreement, that Employee is disabled or incapacitated and
cannot discharge the duties and responsibilities contemplated hereunder,
Employer shall have the right to hire an employee to replace him in whatever
position he may have at that time.
A. Disability Insurance. In lieu of the foregoing, Employer may
obtain disability insurance for Employee. Should this occur, paragraph 5.1 shall
be null and void and the terms of said disability insurance shall govern, so
long as the terms in such policy are equal to or greater than the terms outlined
in Section 5.1.
5.2 Death During Employment. If Employee dies during the term of
employment, Employer shall pay to the estate of Employee the compensation which
would otherwise be payable to Employee up to the end of the month in which death
occurs. In addition, Employer shall pay a sum equal to two (2) year's
compensation payable in three equal monthly installments after the death of
Employee to the spouse of Employee or if he is not survived by his spouse, then
to Employee's heirs in equal shares, or if there are no such surviving heirs, to
the estate of Employee.
ARTICLE VI
Confidential Information; Trade Secrets; Proprietary Rights
6.1 Confidentiality. Employee hereby acknowledges that he has received
information regarding the business of Employer, including but not limited to
customer lists, product information, business strategy, employee agreements,
which information is confidential information (the "Confidential Information").
The parties hereto recognize and acknowledge that the Confidential Information
is proprietary and integral to Employer's business and agrees to keep such
Confidential Information confidential and not disclose the same to any third
person, corporation and/or entity for a period of three (3) years subsequent to
the termination of this Agreement or termination of Employee as an employee of
Employer, whether such termination is with or without cause.
6.2 Products. All products relating to Employer's business, designed,
improved or enhanced by Employee, will be the sole property of Employer and
Employee will not be allowed to possess or use them unless Employer agrees in
writing thereto. Whenever requested to do so by Employer, Employee will execute
any and all applications, assignments or other instruments that Employer deems
necessary to protect Employer's interests therein. Employee's obligations
hereunder shall survive the termination of Employee's employment with respect to
inventions, discoveries and improvements conceived or made by Employee during
the term of Employee's employment described in this Agreement.
ARTICLE VII
Non-Competition
7.1 Non-Competition. During Employee's term of employment set forth in
this Agreement, and for a period of one (1) year thereafter, Employee will not
directly or
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indirectly be an owner, partner, director, manager, officer or employee or
otherwise render services or be associated with any business that competes with
Employer.
ARTICLE VIII
Termination / Note Purchase
8.1 Termination With Cause. With cause, Employer may terminate this
Agreement upon thirty (30) days' notice to Employee. In such event, Employee
shall continue to render his services and shall be paid his regular compensation
up to the date of termination. Severance allowance shall be equal to six (6)
month's salary of Employee. For purposes of this Agreement, termination "with
cause" shall be for any of the following:
A. Any breach of any material obligations owed to Employer;
B. Failure to follow the directive of the Company's board of
directors; or
C. Conviction of a felony or any act involving moral turpitude.
8.2 Termination Without Cause. Employer may terminate Employee without
cause upon thirty (30) days written notice. Upon termination without cause by
employer, Employee shall be entitled to cash compensation equal to the greater
of the following: (A) the then existing base salary of Employee, as defined in
Article 2.1, for the remainder of the term of this Agreement; or (B) the then
existing base salary of Employee, as defined in Article 2.1, for a period of one
(1) year from the date of termination without cause. In the event of termination
without cause, all cash compensation, as referred to above, shall be paid to
Employee on a bi-monthly basis.
8.3 Reserved.
8.4 Termination Upon Sale of Business. Notwithstanding anything to the
contrary, Employer may terminate this Agreement upon thirty (30) days' written
notice upon the happening of any of the following events which any one event
will be treated as a termination without cause for purposes of severance
allowance pursuant to this Agreement.
A. The sale by Employer of substantially all of its assets to a
single purchaser or a group of associated purchasers;
B. The sale, exchange or other disposition, in one transaction, of
at least fifty percent (50%) of the outstanding common shares of the Employer;
C. A decision by Employer to terminate its business and liquidate
its assets; or the merger or consolidation of Employer in a transaction in which
the shareholders of Employer receive at least fifty percent (50%) of the
outstanding voting shares of the new or continuing corporation.
D. Notwithstanding the foregoing, should Employer agree to
sell all or substantially all of its assets, Employer shall purchase Employee's
Shares for an amount of the greater of the Stock Purchase Price or the same
price sold by other of Employer's shareholders.
ARTICLE IX
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General Provisions
9.1. Waiver of Breach. The waiver by Employer of breach of any provisions
of this Agreement by Employee shall not operate or be construed as a waiver of
any subsequent breach by Employee. No waiver shall be valid unless in writing
and signed by an authorized officer of Employer.
9.2 Assignment. Employee acknowledges that the services to be rendered by
him are unique and personal. Accordingly, Employee may not assign any of his
rights under this Agreement. The rights and obligations of Employer under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of Employer.
9.3 Modification. This Agreement may not be modified, changed or altered
orally but only by an agreement in writing signed by the party against an
enforcement of any waiver, change, modification, extension or discharge as
sought.
9.4. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Nevada.
9.5 Integration Clause. This instrument contains the entire agreement
between the parties hereto and supersedes any and all prior written and/or oral
agreements. This Agreement may be altered or modified only in writing signed by
the parties hereto.
9.6 Notices. Any notice required or desired to be given under this
Agreement shall be deemed given if in writing sent by certified mail to the
parties at each party's last known address.
9.7 Attorneys' Fees. Should any party seek the enforcement of any term of
this Agreement, the prevailing party thereunder shall be entitled to attorneys'
fees and costs for the enforcement of such term or provision.
9.8 Arbitration. In the event of any dispute arising under this Agreement,
including any dispute regarding the nature, scope or quality of services
provided by either party hereto, its is hereby agreed that such dispute shall be
resolved by binding arbitration to be conducted by the American Arbitration, to
be arbitrated in accordance with its rules and regulations and procedures in Las
Vegas, Nevada. In the event of any such arbitration, pending resolution of the
arbitration and the award of costs by the arbitrator, each party hereto shall
advance one-half of the amounts, if any, requested by the arbitrator and/or the
sponsoring organization.
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IN WITNESS WHEREOF, the parties executed this Agreement as of the
date first written above.
EMPLOYEE
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EMPLOYER
By: _____________________________
Its:______________________________
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<PAGE>
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISTRIBUTED
DIRECTLY OR INDIRECTLY, IN THE UNITED STATES, ITS TERRITORIES, POSSESSIONS, OR
AREAS SUBJECT TO ITS JURISDICTION, OR TO OR FOR THE ACCOUNT OR BENEFIT OF A
"U.S. PERSON" AS THAT TERM IS DEFINED IN RULE 902 OR REGULATION S OF THE ACT, AT
ANY TIME PRIOR TO ONE (1) YEAR AFTER THE ISSUANCE OF THIS CERTIFICATE, EXCEPT
(i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER
SUCH ACT, OR (ii) IN COMPLIANCE WITH AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT. ANY SALES, TRANSFERS OR DISTRIBUTIONS OF THE SECURITIES MUST BE MADE IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S OF THE ACT."
OFFSHORE LOAN SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and eRoom System
Technologies, Inc., a Nevada corporation (the "Company") hereby agrees to issue
and to sell to you and other Subscribers, 9% Secured, Subordinated Notes (the
"Notes") and Common Stock of the Company. The amount of your purchase is set
forth on the signature page hereof. The form of Note is annexed hereto as
Exhibit A. The Notes and the Common Stock are sometimes referred to as the
"Securities". The Company shall issue and deliver to the Subscriber, the Note
and Common Stock against payment by wire transfer of the Purchase Price.
The following terms and conditions shall apply to this subscription.
1. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. The Subscriber hereby
represents and warrants to and agrees with the Company that:
(a) INFORMATION ON COMPANY. The Subscriber has been furnished with
information concerning its operations, financial condition and other matters as
the Subscriber has requested, and considered all factors the Subscriber deems
material in deciding on the advisability of investing in the Securities (such
information in writing is referred to as the "Written Information").
(b) INFORMATION ON SUBSCRIBER. The Subscriber is an "accredited
investor", as such term is defined by the Commission under the Securities Act of
1933, as amended, is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of United
States privately and publicly-owned companies in private placements in the past
and, with his representatives, has such knowledge and experience in financial,
tax and other business matters as to enable the Subscriber to utilize the
information made available by the Company to evaluate the merits and risks of
and to make an informed investment decision with respect to the proposed
purchase, which represents a speculative investment. The Subscriber has the
authority and is duly and legally qualified to purchase and own the Securities.
The Subscriber is able to bear the risk of such investment for an indefinite
period and to afford a complete loss thereof.
<PAGE>
(c) PURCHASE OF SECURITIES. On the Closing Date, the Subscriber will
purchase the Note and Common Stock for his own account and not with a view to
any distribution thereof.
(d) COMPLIANCE WITH SECURITIES ACT. The Subscriber understands and
agrees that the Securities have not been registered under the Securities Act of
1933, as amended (the "1933 Act") by reason of their issuance in a transaction
that does not require registration under the 1933 Act, and that such Securities
must be held unless a subsequent disposition is registered under the 1933 Act or
is exempt from such registration.
(e) RESTRICTIVE LEGEND. The Securities shall bear the following
legend (the "Legend"):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISTRIBUTED DIRECTLY OR INDIRECTLY, IN THE UNITED STATES,
ITS TERRITORIES, POSSESSIONS, OR AREAS SUBJECT TO ITS JURISDICTION, OR
TO OR FOR THE ACCOUNT OR BENEFIT OF A "U.S. PERSON" AS THAT TERM IS
DEFINED IN RULE 902 OR REGULATION S OF THE ACT, AT ANY TIME PRIOR TO
ONE (1) YEAR AFTER THE ISSUANCE OF THIS CERTIFICATE, EXCEPT (i) IN
CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES
UNDER SUCH ACT, OR (ii) IN COMPLIANCE WITH AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT. ANY SALES, TRANSFERS OR DISTRIBUTIONS OF
THE SECURITIES MUST BE MADE IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S OF THE ACT."
(f) TRANSFERABILITY. The Company need not register a transfer of any
Securities, and may also instruct its transfer agent not to register the
transfer of the Shares, unless the conditions specified in the foregoing Legend
and under Regulation S are satisfied, to the extent applicable.
(g) COMMUNICATION OF OFFER. The offer to sell the Securities was
directly communicated to the Subscriber. At no time was the Subscriber presented
with or solicited by any leaflet, newspaper or magazine article, radio or
television advertisement, or any other form of general advertising or solicited
or invited to attend a promotional meeting otherwise than in connection and
concurrently with such communicated offer.
(h) CORRECTNESS OF REPRESENTATIONS. The Subscriber represents that
the foregoing representations and warranties are true and correct as of the date
hereof and, unless the Subscriber otherwise notifies the Company prior to the
Closing Date (as hereinafter defined), shall
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be true and correct as of the Closing Date. The foregoing representations and
warranties shall survive the Closing Date.
(i) OFFSHORE TRANSACTION. The Subscriber represents and warrants to
the Company as follows:
(i) The Subscriber is not a "U.S. Person" as defined in
Regulation S under the 1933 Act ("Regulation S"); specifically the Subscriber is
not:
(1) a natural person resident in the United States of
America, including its territories and possessions ("United States");
(2) a partnership or corporation organized or incorporated
under the laws of the United States;
(3) an estate of which any executor or administrator is a
U.S. Person;
(4) a trust of which any trustee is a U.S. Person;
(5) an agency or branch of a foreign entity located in the
United States;
(6) a non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary for the benefit or
account of a U.S. Person;
(7) a discretionary account or similar account (other than
an estate or trust) held by a dealer or other fiduciary organized, incorporated,
or (if an individual) resident in the United States; and
(8) a partnership or corporation:
(A) organized or incorporated under the laws of any
foreign jurisdiction; and
(B) formed by a U.S. Person principally for the
purpose of investing in securities not registered under the 1933 Act, unless it
is organized or incorporated, and owned, by accredited investors (as defined in
Rule 501(a) under the Act) who are not natural persons, estates or trusts.
(ii) At the time the buy-order for the Securities was originated,
the Subscriber was outside the United States.
(iii) The Subscriber is purchasing the Securities for its own
account and not on behalf of any U.S. Person and a sale of the Securities has
not been pre-arranged with a purchaser in the United States.
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(iv) All offers and sales of the Securities prior to the
expiration of a period (the "Distribution Compliance Period") commencing on the
Closing Date (as defined herein) and ending one year thereafter shall only be
made in compliance with Regulation S, pursuant to registration of the Securities
under the 1933 Act and applicable state securities laws or pursuant to an
exemption from such registration; and all offers and sales after the expiration
of the Distribution Compliance Period shall be made only pursuant to such
registration or to such exemption from registration.
(v) The Subscriber understands that the Securities are being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States and state securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the Subscriber set forth
herein and in the Subscription Agreement in order to determine the applicability
of such exemptions and the suitability of the Subscriber to acquire the
Securities.
(vi) The purchase of the Securities by the Subscriber is not a
transaction (or an element of a series of transactions) that is part of any plan
or scheme to evade the registration provisions of the 1933 Act.
2. COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants to and agrees with the Subscriber, except as disclosed in the
Reports and Other Written Information, that:
(a) DUE INCORPORATION. The Company and each of its subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of the respective jurisdictions of their incorporation and have the
requisite corporate power to own their properties and to carry on their business
as now being conducted; and is duly qualified as a foreign corporation to do
business and is in good standing in each jurisdiction where the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those jurisdictions in which the failure to so qualify would not have
a material adverse effect on the business, operations or prospects or condition
(financial or otherwise) of the Company, except in Utah, the District of
Columbia, New York, Florida, Georgia and Illinois.
(b) OUTSTANDING STOCK. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) AUTHORITY; ENFORCEABILITY. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid and binding
agreement enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and the Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder and all other agreements entered into by the Company relating hereto.
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(d) ADDITIONAL ISSUANCES. There are no outstanding agreements or
preemptive or similar rights affecting the Company's Common Stock or equity and
no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of Common Stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company,
except as described in the Written Information or except as waived.
(e) CONSENTS. No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its affiliates, the NASD, NASDAQ or the Company's
Shareholders is required for execution of this Agreement, and all other
agreements entered into by the Company relating thereto, including, without
limitation, issuance and sale of the Securities, and the performance of the
Company's obligations hereunder.
(f) NO VIOLATION OR CONFLICT. Assuming the representations and
warranties of the Subscriber in Paragraph 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither the
issuance and sale of the Securities nor the performance of its obligations under
this Agreement and all other agreements entered into by the Company relating
thereto by the Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles of incorporation, charter or by laws of the Company, or any of its
affiliates, (B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company, or any of
its affiliates of any court, governmental agency or body, or arbitrator having
jurisdiction over the Company, or any of its affiliates or over the properties
or assets of the Company, or any of its affiliates, (C) the terms of any bond,
debenture, note or any other evidence of indebtedness, or any agreement, stock
option or other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company, or any of its affiliates is a party, by which
the Company, or any of its affiliates is bound, or to which any of the
properties of the Company, or any of its affiliates is subject, or (D) the terms
of any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company, or any of its affiliates is a party; or
(ii) result in the creation or imposition of any lien,
charge or encumbrance upon the Securities or any of the assets of the Company,
or any of its affiliates.
(g) THE SECURITIES. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and State laws;
(ii) have been, or will be, duly and validly authorized and
on the date of issuance on the Closing Date, as hereinafter defined, will be
duly and validly issued, fully paid and nonassessable;
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(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company; and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
(h) LITIGATION. Other than as described in the Reports and other
Written Information, there is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its affiliates that would affect the execution by the Company or the
performance by the Company of its obligations under this Agreement, and all
other agreements entered into by the Company relating hereto.
(i) INFORMATION CONCERNING COMPANY. The Written Information
contain all material information relating to the Company and its operations and
financial condition as of their respective dates which information is required
to be disclosed therein. Since the date of the financial statements included in
the Written Information, and except as modified in the Written Information,
there has been no material adverse change in the Company's business, financial
condition or affairs not disclosed in the Written Information. The Written
Information does not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(j) STOP TRANSFER. The Securities are restricted securities as
of the date of this Agreement. The Company will not issue any stop transfer
order or other order impeding the sale and delivery of the Securities at such
time as the Securities are registered for public sale or an exemption from
registration is available.
(k) DEFAULTS. Neither the Company nor any of its subsidiaries is
in violation of its Articles of Incorporation or By Laws. Neither the Company
nor any of its subsidiaries is (i) in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or any of
its properties are bound or affected, which default or violation would have a
material adverse effect on the Company (except as to agreements in default as of
the date hereof), (ii) in default with respect to any order of any court,
arbitrator or governmental body or subject to or party to any order of any court
or governmental authority arising out of any action, suit or proceeding under
any statute or other law respecting antitrust, monopoly, restraint of trade,
unfair competition or similar matters, or (iii) to its knowledge in violation of
any statute, rule or regulation of any governmental authority material to its
business, excluding qualifications otherwise referred to in this Securities Loan
Agreement.
(l) NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would prevent the offering from
qualifying for the exemption from registration under the 1933 Act. Neither the
Company nor any of its affiliates or subsidiaries will take any action or steps
that would cause the offering of the Securities to be so effected.
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(m) USE OF PROCEEDS. The proceeds of the Subscriber's funds to
be released to the Company will be used for working capital and for expenses of
its offering.
(n) NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of the Act) in connection with the offer or sale of the Securities.
(o) OFFSHORE TRANSACTION. The Company has not offered the
Securities to any person in the United States, any identifiable groups of U.S.
citizens abroad or to any "U.S. Person" as that term is defined in Regulation S.
(p) NO DIRECTED SELLING EFFORTS. In regard to this transaction,
the Company has not conducted any "directed selling efforts" as that term is
defined in Rule 902 of Regulation S nor has the Company conducted any general
solicitation relating to the offer and sale of the securities that are the
subject of this transaction to persons resident within the United States or
elsewhere.
(q) CORRECTNESS OF REPRESENTATIONS. The Company represents that
the foregoing representations and warranties are true and correct as of the date
hereof in all material respects and, unless the Company otherwise notifies the
Subscriber prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
3. EXEMPT OFFERING. This Offering is being made pursuant to an
exemption from the registration provisions of the Securities Act of 1933, as
amended. On the Closing Date, the Company will provide an opinion acceptable to
Subscriber from the Company's legal counsel opining on the exemption as it
relates to the offer and issuance of the Securities and as to other matters. A
form of the legal opinion is annexed hereto as Exhibit B. The Company will
provide, at the Company's expense, such other legal opinions in the future as
are reasonably necessary for the sale of the Common Stock.
4. REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to dispose of such Securities pursuant to Rule 144(k) under the Act, or (b) upon
resale subject to an effective registration statement after the Securities are
registered under the Act. The Company agrees to cooperate with the Subscriber in
connection with all resales pursuant to Rule 144(d) and Rule 144(k) and provide
legal opinions necessary to allow such resales provided the Company and its
counsel receive reasonably requested certifications from the Subscriber and
selling broker, if any.
5. REDEMPTION. The Company may not redeem the Securities without the
consent of the holder of the Securities.
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6. LEGAL EXPENSE. The Company shall pay to counsel to the
Subscribers its fee of for services rendered to the Subscribers in reviewing
this Agreement in the maximum amount of $25,000.
7. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly after it
receives notice of issuance by the Securities and Exchange Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) The Company will use its best efforts to obtain a listing
and trading of its Common Stock on the NASDAQ SmallCap Stock Market, and will
comply in all respects with the Company's reporting, filing and other
obligations under the by laws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company will provide the
Subscriber, copies of all notices it receives notifying the Company of the
threatened and actual delisting of the Common Stock on any exchange or quotation
system on which the Common Stock becomes listed.
(c) The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Subscriber
and promptly provide copies thereof to Subscriber.
(d) Until at least three (3) years after the effectiveness of
the Registration Statement on Form SB-2 or such other Registration Statement
described in Section 10 hereof, the Company will (i) cause its Common Stock to
be registered under Sections 12(b) or 12(g) of the Exchange Act, (ii) comply in
all respects with its reporting and filing obligations under the Exchange Act,
(iii) comply with all requirements related to any registration statement filed
pursuant to this Agreement and (iv) use its commercial best efforts to obtain
and continue the listing or trading of the Common Stock on NASDAQ SmallCap Stock
Market and will comply in all respects with the Company's reporting, filing and
other obligations under the by laws or rules of the NASD and NASDAQ, as
appropriate. The Company will not take any action or file any document (whether
or not permitted by the Act or the Exchange Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said Acts until the later of (i) three (3) years
after the effective date of the Registration Statement on Form SB-2 or such
other Registration Statement described in Section 10 hereof, or (ii) the sale by
the Subscribers of all the Common Stock issued pursuant to this Agreement.
(e) The Company undertakes to use the proceeds of the
Subscriber's funds for working capital and expenses of its initial public
offering.
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(f) The Company covenants and agrees that until the Note is
fully paid, the Company will not seek the protection of any bankruptcy
protection or insolvency laws or encourage, solicit or assist any other person
to seek such protection on the Company's or its creditors' behalf.
(g) EXCEPTIONS TO CORPORATE STANDING OF SUBSIDIARIES. The
Company will promptly take such action as may be necessary to cause the Company
and each of its subsidiaries to eliminate the exceptions to the affirmative
representations made in Section 2(a) of this Loan Subscription Agreement.
(h) MOST FAVORED NATION PROVISION. Until the Notes are paid
in full, in the event the Company offers to sell any securities to any person
in any public offering or private placement, the Company shall offer to
exchange the Securities purchased by the Subscribers for the securities
offered to such other person, on the same basis and for the same
consideration as offered to such other person; provided however, that such
right shall not apply to the anticipated initial public offering or to the
offer and sale of securities to employees, consultants, officers or
directors, or to the exercise of options. The Company shall give the
Subscribers five (5) days notice of the intent to make any such offering,
during which period the Subscribers shall have the right to accept such offer
in exchange for the full amount of such Subscribers Note plus accrued
interest. After the lapse of the five (5) day period the right to such
exchange will be extinguished unless the Subscriber gives prior notice of
acceptance of the exchange. The Company will be relieved of the obligation
hereunder if it does not consummate the offer to other investors.
8. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING
INDEMNIFICATIONS.
(a) The Company agrees to indemnify, hold harmless, reimburse
and defend Subscriber, Subscriber's officers, directors, agents, affiliates,
control persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of any
nature, incurred by or imposed upon Subscriber which results, arises out of or
is based upon (i) any misrepresentation by Company or breach of any warranty by
Company in this Agreement or in any Exhibits or Schedules attached hereto, or
the Written Information; or (ii) any breach or default in performance by Company
of any covenant or undertaking to be performed by Company hereunder, or any
other agreement entered into by the Company and Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is based
upon (a) any misrepresentation by Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto; or (b) any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
(c) The procedures set forth in Section 10.6 shall apply to the
indemnifications set forth in Sections 8(a) and 8(b) above.
9. INTENTIONALLY DELETED.
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10.1 REGISTRATION OF COMPANY SECURITIES AND REGISTRATION RIGHTS OF
SUBSCRIBERS.
(a) The Company shall file with the Commission within 25 days of
the Closing Date (the "Filing Date"), and use its reasonable commercial efforts
to cause to be declared effective a Form SB-2 registration statement, (or such
other form that it is eligible to use) in order to register the Registerable
Securities (the Common Stock and securities issued or issuable by virtue of
ownership of the Common Stock being the "Registerable Securities") for resale
and distribution under the Act. The Company shall use its reasonable commercial
efforts to cause the registration statement described in this paragraph to be
declared effective by the Commission on or before 180 days after the Closing
Date ("Effective Date").
(b) Provided the Registrable Securities are not otherwise
registered for resale by the Subscriber or Holder pursuant to an effective
registration statement or exempt from registration under the Act, until five
years after the Closing Date, the Company at any time proposes to register
any of its securities under the Act for sale to the public, whether for its
own account or for the account of other security holders or both, except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
each such time it will give at least 30 days' prior written notice to the
record holder of the Registrable Securities of its intention so to do. Upon
the written request of the holder, received by the Company within 30 days
after the giving of any such notice by the Company, to register any of the
Registrable Securities, the Company will cause such Registrable Securities as
to which registration shall have been so requested to be included with the
securities to be covered by the registration statement proposed to be filed
by the Company, all to the extent required to permit the sale or other
disposition of the Registrable Securities so registered by the holder of such
Registrable Securities (the "Seller").
10.2 REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities copies of all filings and
Commission letters of comment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
eighteen (18) months following the effective date of such registration date and
comply with the provisions of the Act with respect to the disposition of all of
the Registrable Securities covered by such registration statement in accordance
with the Seller's intended method of disposition set forth in such registration
statement for such period;
(c) furnish to the Seller, and to each underwriter if any, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary
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prospectus) as such persons reasonably may request in order to facilitate the
public sale or their disposition of the securities covered by such registration
statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f) immediately notify the Seller and each underwriter under
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act, of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) make available for inspection by the Seller, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by the Seller or underwriter,
all publicly available, non-confidential financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all publicly available,
non-confidential information reasonably requested by the seller, underwriter,
attorney, accountant or agent in connection with such registration statement.
10.3 PROVISION OF DOCUMENTS.
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 10, the Registrable Securities
will be included in a registration statement filed pursuant to this Section 10.
In the event of a firm commitment underwritten public offering in which the
Registrable Securities are so included, other than the Company's initial public
offering, the lockup, if any, requested by the managing underwriter may not
exceed ninety (90) days after the effective date thereof.
(b) In connection with each registration hereunder, the Seller
will furnish to the Company in writing such information and representation
letters with respect to itself and the proposed distribution by it as reasonably
shall be necessary in order to assure compliance with federal and applicable
state securities laws. In connection with each registration pursuant to Section
10.1(ii) covering an underwritten public offering, the Company and the Seller
agree to enter into a written agreement with the managing underwriter in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such underwriter and companies of the Company's
size and investment stature.
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10.4 RESTRICTION ON SALE OF COMMON STOCK. The Common Stock purchased
pursuant to this Loan Subscription Agreement may not be sold until the lapse of
180 days from the closing of the initial public offering unless the consent of
the Company thereto is obtained in writing. The Seller shall also defer sale of
such Common Stock if required by the NASD or NASDAQ in connection with the
Company's initial public offering, but not for any period exceeding one year
from the closing of the initial public offering, unless the consent to do so is
granted in writing by Anthony Heller.
10.5. EXPENSES. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including counsel fees) incurred
in connection with complying with state securities or "blue sky" laws, fees of
the National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, fee of one counsel, if any, to represent all the
Sellers, and costs of insurance are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any special
counsel to the Seller, are called "Selling Expenses". The Seller shall pay the
fees of its own additional counsel, if any.
The Company will pay all Registration Expenses in connection
with the registration statement under Section 10. All Selling Expenses in
connection with each registration statement under Section 10 shall be borne by
the Seller and may be apportioned among the Sellers in proportion to the number
of shares sold by the Seller relative to the number of shares sold under such
registration statement or as all Sellers thereunder may agree.
10.6. INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of a registration of any Registrable Securities
under the Act pursuant to Section 10, the Company will indemnify and hold
harmless the Seller, each officer of the Seller, each director of the Seller,
each underwriter of such Registrable Securities thereunder and each other
person, if any, who controls such Seller or underwriter within the meaning of
the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, the underwriter or
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any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 10, the Seller will indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the Act pursuant to Section 10, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the Registrable
Securities sold by the Seller under such registration statement bears to the
total public offering price of all securities sold thereunder, but not in any
event to exceed the gross proceeds received by the Seller from the sale of
Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.6(c) if and to the extent the indemnifying party is prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 10.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in
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any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party or if the interests of the indemnified
party reasonably may be deemed to conflict with the interests of the
indemnifying party, the indemnified parties shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Act in any case in which either (i) the
Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
provided under this Section 10.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (A) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
11. MISCELLANEOUS.
(a) NOTICES. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being telecopied (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section: (i) if to the Company, to
eRoom System Technologies, Inc., c/o Gregory L. Hrncir, 3770 Howard Hughes
Parkway, Suite 175, Las Vegas, Nevada 89109, telecopier number (702) 792-2403
with a copy to Michael J. Bonner, Esq., Kummer Kaempfer Bonner & Renshaw, 3800
Howard Hughes Parkway, 7th Floor, Las Vegas, Nevada, 89109, telecopier number
(702) 796-7181 (ii) if to the Subscriber, to the name, address and telecopy
number set forth on the signature page hereto, with a copy by telecopier only to
Anthony Heller. Any notice that may be given pursuant to this Agreement, or any
document delivered in connection with the foregoing may be given by the
Subscriber on the first business day after the observance dates in the United
States of America by Orthodox Jewry of Rosh Hashanah, Yom Kippur, the first two
days of the Feast of Tabernacles, Shemini Atzeret, Simchat Torah, the first two
and final two days of Passover and Pentecost, with such notice to be deemed
given and effective, at the election
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of the Subscriber on a holiday date that precedes such notice. Any notice
received by the Subscriber on any of the aforedescribed holidays may be deemed
by the Subscriber to be received and effective as if such notice had been
received on the first business day after the holiday.
(b) CLOSING. The consummation of the transactions contemplated
herein shall take place at the offices of Snow Becker Krauss P.C., New York, New
York upon the satisfaction of all conditions to Closing set forth in this
Agreement. The closing date shall be April 13, 2000 (the "Closing Date").
(c) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement represents the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. No right
or obligation of either party shall be assigned by that party without prior
notice to and the written consent of the other party.
(d) EXECUTION. This Agreement may be executed by facsimile
transmission, and in counterparts, each of which will be deemed an original.
(e) LAW GOVERNING THIS AGREEMENT. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
(f) SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION. The Company
and Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
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(g) AUTOMATIC TERMINATION. This Agreement shall automatically
terminate without any further action of either party hereto if the Closing shall
not have occurred by the fifteenth (15th) business day following the date this
Agreement is accepted by the Subscriber.
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<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
eRoom System Technologies, Inc.
By:
-----------------------------------
STEVEN L. SUNYICH
Chief Executive Officer
Dated: April ___, 2000
Purchase Price: $
-----------------
Amount of Note $
-----------------
(Equal to the Purchase Price)
Number of Shares of Common Stock:
---------------------------------
(Equal to the product of 0.13334 multiplied by the Purchase Price)
ACCEPTED: Dated as of April ___, 2000
By:
----------------------------
-17-
<PAGE>
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISTRIBUTED
DIRECTLY OR INDIRECTLY, IN THE UNITED STATES, ITS TERRITORIES, POSSESSIONS, OR
AREAS SUBJECT TO ITS JURISDICTION, OR TO OR FOR THE ACCOUNT OR BENEFIT OF A
"U.S. PERSON" AS THAT TERM IS DEFINED IN RULE 902 OR REGULATION S OF THE ACT, AT
ANY TIME PRIOR TO ONE (1) YEAR AFTER THE ISSUANCE OF THIS CERTIFICATE, EXCEPT
(i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER
SUCH ACT, OR (ii) IN COMPLIANCE WITH AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT. ANY SALES, TRANSFERS OR DISTRIBUTIONS OF THE SECURITIES MUST BE MADE IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S OF THE ACT."
SECURED, SUBORDINATED NOTE
FOR VALUE RECEIVED, eROOM SYSTEM TECHNOLOGIES, INC., a Nevada corporation
(hereinafter called "Borrower"), hereby promises to pay to __________________
(the "Holder") or order, without demand, the sum of ______________ $_________,
with simple interest accruing at the annual rate of 9%, on October ___, 2000 or
such earlier date on which the Borrower consummates a public offering of
securities ("Closing") (the "Maturity Date").
The following terms shall apply to this Note:
ARTICLE I
DEFAULT RELATED PROVISIONS
1.1 PAYMENT GRACE PERIOD. The Borrower shall have a two (2) day grace
period to pay any monetary amounts due under this Secured Note ("Note"), after
which grace period a default interest rate of 16% per annum shall apply to the
amounts owed hereunder, provided, however, if the Maturity Date occurs upon
Closing there shall be no grace period and this Note shall be payable at
Closing.
1.2 INTEREST RATE. On the Maturity Date, accelerated or otherwise, the
Borrower shall pay interest at the annual rate of 9% per annum.
ARTICLE II
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived:
<PAGE>
2.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay any
installment of principal or interest hereon when due and such failure continues
for a period of two (2) days after written notice to the Borrower from the
Holder.
2.2 BREACH OF COVENANT. The Borrower breaches any material covenant or
other term or condition of this Note or the Loan Subscription Agreement and such
breach continues for a period of seven (7) days after written notice to the
Borrower from the Holder.
2.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or
warranty of the Borrower made herein, in the Loan Subscription Agreement entered
into by the Holder and Borrower in connection with this Note, or in any
agreement, statement or certificate given in writing pursuant hereto or in
connection herewith shall be false or misleading.
2.4 RECEIVER OR TRUSTEE. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
2.5 JUDGMENTS. Any money judgment, writ or similar final process shall
be entered or filed against Borrower or any of its property or other assets for
more than $100,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.
2.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.
2.7 LISTING. The Common Stock of the Company shall not qualify for
listing on the NASDAQ SmallCap Market or the Company receives notification that
the Borrower is not in compliance with the conditions for such listing.
2.8 CONFESSION OF JUDGMENT. A confession of judgment by the Borrower or a
default (not existing as of the date of this Note) under any one or more
obligations in an aggregate monetary amount in excess of $100,000.
2.9 REGISTRATION DEFAULT. The occurrence of a failure to comply with the
terms of Section 10 of the Loan Subscription Agreement.
2.10 CROSS DEFAULT. The occurrence of a material default or an Event of
Default as that term is defined in any other material agreement to which the
Company is a party (not existing as of the date of the Note).
ARTICLE III
MISCELLANEOUS
3.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise
2
<PAGE>
thereof or of any other right, power or privilege. All rights and remedies
existing hereunder are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
3.2 NOTICES. Any notice herein required or permitted to be given shall
be in writing and any notice that may be given pursuant to this Agreement, or
any document delivered in connection with the foregoing may be given by the
Holder or the Company on the first business day after the observance dates in
the United States of America by Orthodox Jewry of Rosh Hashanah, Yom Kippur, the
first two days of the Feast of Tabernacles, Shemini Atzeret, Simchat Torah, the
first two and final two days of Passover and Pentecost, with such notice to be
deemed given and effective, at the election of the person giving Notice on a
holiday date that precedes such notice. Any notice received on any of the
aforedescribed holidays may be deemed to be received and effective as if such
notice had been received on the first business day after the holiday. For the
purposes hereof, the address and fax number of the Holder is as set forth on the
first page hereof. The address and fax number of the Borrower shall be eRoom
System Technologies, Inc., c/o Gregory Hrncir, Esq., 3770 Howard Hughes Parkway,
Suite 175, Las Vegas, Nevada 89109, telecopier number (702) 792-2403. Both
Holder and Borrower may change the address and fax number for service by service
of notice to the other as herein provided.
3.3 AMENDMENT PROVISION. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented.
3.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.
3.5 COST OF COLLECTION. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
3.6 GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York. Any action brought by either
party against the other concerning this Note shall be brought only in the state
courts of New York or in the federal courts located in the state of New York.
Both parties and the individual signing this Agreement on behalf of the Borrower
agree to submit to the jurisdiction of such courts. The prevailing party shall
be entitled to recover from the other party its reasonable attorney's fees and
costs.
3.7 MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to establish
or require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Borrower to the Holder and thus refunded to the Borrower.
3
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its Chief Executive Officer on this 13th day of April, 2000.
By:
-------------------------------
Steven L. Sunyich
Chief Executive Officer
WITNESS:
- -------------------------------
4
<PAGE>
EXHIBIT 16.01
[Original Printed on Letterhead of Arthur Andersen LLP]
Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
April 10, 2000
Dear Sir/Madam:
We have read the Change in Accountants section of the Registration Statement on
Form SB-2 of eRoom System Technology, Inc. to be filed with the Securities and
Exchange Commission and are in agreement with the statements contained therein.
Very truly yours,
/s/ Arthur Andersen LLP
Arthur Andersen LLP
cc: Mr. Derek K. Ellis, CFO, eRoom System Technology, Inc.
<PAGE>
Exhibit 21.01
List of Subsidiaries
1. RoomSystems, Inc., a Nevada corporation
2. RSi BRE, Inc., a Nevada corporation
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
eRoom System Technologies, Inc.
As independent certified public accountants, we hereby consent to
the use of our report dated April 13, 2000 with respect to the consolidated
financial statements of eRoom System Technologies, Inc. included in this
Registration Statement on Form SB-2, and consent to the use of our name in
the "Experts" section of this Registration Statement.
/s/ HANSEN, BARNETT & MAXWELL
------------------------------
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
April 13, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BALANCE SHEET AS OF DECEMBER 31, 1999, AND STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999, AND IS QUALIFITED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 113,252 1,850
<SECURITIES> 0 0
<RECEIVABLES> 121,720 39,555
<ALLOWANCES> (15,000) (3,900)
<INVENTORY> 697,033 1,488,354
<CURRENT-ASSETS> 923,255 1,527,109
<PP&E> 561,080 712,877
<DEPRECIATION> (268,804) (203,381)
<TOTAL-ASSETS> 4,365,247 2,520,289
<CURRENT-LIABILITIES> 3,521,981 4,885,453
<BONDS> 2,372,480 2,884,289
0 0
7,504,149 1,332,953
<COMMON> 2,217 3,532
<OTHER-SE> (7,530,219) (3,764,591)
<TOTAL-LIABILITY-AND-EQUITY> 4,365,247 2,520,289
<SALES> 144,282 916,650
<TOTAL-REVENUES> 592,409 1,011,462
<CGS> 118,010 711,355
<TOTAL-COSTS> 362,523 793,256
<OTHER-EXPENSES> (1,549,171) 6,888,214
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,444,532 1,922,638
<INCOME-PRETAX> 334,525 (8,592,646)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 334,525 (8,592,646)
<DISCONTINUED> 0 (407,000)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 334,525 (8,999,646)
<EPS-BASIC> (0.09) (2.98)
<EPS-DILUTED> (0.09) (2.98)
</TABLE>
<PAGE>
CONSENT
The undersigned hereby consents to be named as a director designee of eRoom
System Technologies, Inc., a Nevada corporation (the "Company"), in the
Company's Registration Statement on Form SB-2 to be filed with the United States
Securities and Exchange Commission on or about April 13, 2000, and all
amendments thereto, in connection with the Company's proposed initial public
offerings of its common stock.
This consent is made as of this 12th day of April 2000.
/s/ Alan C. Ashton
- ----------------------------------
Alan C. Ashton, an individual
<PAGE>
CONSENT
The undersigned hereby consents to be named as a director designee of eRoom
System Technologies, Inc., a Nevada corporation (the "Company"), in the
Company's Registration Statement on Form SB-2 to be filed with the United States
Securities and Exchange Commission on or about April 13, 2000, and all
amendments thereto, in connection with the Company's proposed initial public
offerings of its common stock.
This consent is made as of this 12th day of April 2000.
/s/ S. Leslie Flegel
- ------------------------------------
S. Leslie Flegel, an individual
